Paying extra to not pay now: the issues with a loan fee for the Higher Education Loans Program

Andrew Norton and Ittima Cherastidtham of the Grattan Institute have released Shared interest: a universal loan fee for HELP.  It proposes that the Government introduce a common 15% loan fee for each element of the Higher Education Loans Program (HELP).

The proposal needs to be taken seriously to think through its implications.  Mr Norton is one of Senator Birmingham’s four higher education Counsellors. It is reasonable to assume his argument will have influence.

The major weakness is the reliance on the exaggerated estimates of the cost of supporting HELP on Government borrowings.

The comment below targets the implications of a loan fee and the case made for it. It then considers the transformation in how Government underwriting of student payments is portrayed from being a ‘contribution’ to being a ‘loan’.

Whether a loan fee should be part of the Government’s next package is an open question.

We need to assess a whole package to see what a loan fee, if included, contributes.  As a means for some reduction in the cost of higher education for Government a loan fee is better than cutting into university funding or imposing real interest in HELP balances. It is worse than directing any additional payment from students to their education now.

Impact of a general loan fee

HELP pays for students their student charges or fees on the basis that the student later pays the charge or fee when their income is sufficient.  There is no fee for the Government paying for the two largest groups of students:

  • undergraduate and postgraduate students in Government funded places, accessing HECS-HELP for their degree studies and OS-HELP for overseas study and work experience; and
  • postgraduate students using FEE-HELP to pay their fees.

There is a loan fee for:

  • undergraduates using FEE-HELP, primarily at the few non-funded private universities and non university providers – a 20% loan fee; and
  • vocational education and training students using VET FEE-HELP – a 25% loan fee.

The loan fee is added to the base fee.  It increases the student total debt.  For example, a $10,000 undergraduate course fee attracts a 20%, or $2000, loan fee if the student uses FEE-HELP rather than pay upfront.

Under the Grattan 15% proposal, the cost for most university students would increase by 15%.  For students in Government funded places, the increase would be between $938 and $1,566 a year on 2016 student contribution rates (see Table One and full comment attached below).

VET Student Loans Bill 2016: Higher education implications

The decision to separate the VET loans away from higher education loans reduces the habitual confusion of VET specific issues into higher education debates.  For instance, a significant aspect to the Parliamentary Budget Office’s exaggerated assessment of the long term cost of the Higher Education Loans Program was the impact of the rapid escalation in VET FEE-HELP (see Three-problems: IRU comment on PBO).

The VET Student Loans Bill 2016 and the associated support bills set up a new loan scheme, with rules to contain bad practice among some providers under VET FEE-HELP.  In particular, there are prohibitions about using the loan to induce people into a course and arrangements to recover from providers a loan contrary to the intentions of the scheme.

For Innovative Research Universities (IRU), the interest in the Bills lies in the potential incentives for education providers that operate in both vocational and higher education and the potential for any of the rules introduced for vocational education to be carried over into higher education.

Provider incentives

The action to contain the operation of low quality providers seeking to use the current VET FEE-HELP arrangements to maximize profits while providing little or no training to enrolled students also has implications for the legitimate providers.

The cap on loan amounts and potentially on fees may encourage providers to consider whether a similar course adapted to secure accreditation as higher education qualification such as a diploma or advanced diploma would be a better option in the future.  The advantage would be that the provider could set a charge at the level they deem suitable for the course.  If accredited through the Tertiary Education Quality and Standards Agency (TEQSA) and then approved for access to FEE-HELP there may be some shifting of loans from one scheme to another.

Higher Education accreditation is a more complex and time consuming process than in VET hence we are not arguing there would be a major new avenue for exploitation.  However, the potential for the shift does need to be recognized.

Constraints on marketing

It is essential to prevent the abuses where some VET providers used VET FEE-HELP as a means to get individuals to sign up for courses they would not complete.  It is also important that in doing so legitimate encouragement of Australians to consider their education and training needs not be suppressed and that competitive marketing of the advantages of a provider not be prevented.

Universities seek to attract potential students to enroll.  It is a natural part of ensuring that every Australian considers their education needs to gain suitable education and training following school.  In doing so, universities provide information to potential students, promote the potential for university education in schools and other arenas and use third parties in doing so.

The provisions of the VET Student Loans Bill 2016 are carefully drafted to focus on preventing providers attract enrolments through use of the potential for a loan.  Assuming they come into effect, their impact on legitimate VET providers should be monitored and the implications for all good providers in either sector considered.  Our initial assessment is they appear targeted to the purpose with minimal impact on good marketing practice.

Improving equity in higher education participation – IRU response to HEPP evaluation

Without a constructive Government response to the evaluation, the next round of HEPPP cuts risks undermining a program critical for educating all students well. It is essential that the long-term program, sustains the incentive to enrol all suitable students regardless of background.

Hence a funding stream tied to enrolments of low SES students and other underrepresented groups remains a core need of an effective higher education funding system.

Based on the original proposal for HEPPP and redressing the history of its implementation the future scheme should involve:

  1. inclusion of a significant loading in the Commonwealth Grant Scheme (CGS) addressing student background, to reward enrolment of a diverse student population broadly matching that of Australia;
  2. maintenance of an effective HEPPP program targeting the development of interest in higher education among communities and individuals less likely to aspire to university and support for their educational development; and
  3. sensible reporting and acquittal arrangements that do not hamper the constructive delivery of student supports.

Read the full response below.

Capping $$ – what does this really mean

A system of capped funding?

What does it mean to change university funding to a capped funding amount which universities can use as they will? Can it both give Government certainty of expenditure and protect universities from micro managing of their operations?

Under current arrangements universities receive base funding based on the load of enrolled students in particular discipline areas. There are also various additional amounts, some such as regional loading added through the main Commonwealth Grant Scheme, others controlled as Other Grants which includes the university research block grants.