On Thursday, my Higher Education Contribution Scheme (HECS) debt increased by $2445.87. I’m lucky — many other graduates are facing much steeper increases, some over $7000.
HECS debts are indexed to inflation on June 1 each year. But this year, inflation has soared to its highest level (7.1%) since HECS’s introduction in 1989 — at which time student contributions were only $1800 per year.
Many debtors took to Twitter dismayed at the historic hike, with some questioning HECS’ design and rationale. Critics and defenders of the scheme adopted their usual postures, with the Greens calling to “abolish student debt”, while others stressed its income contingency.
I find neither side compelling. Adam Bandt is a poor man’s Alexandria Ocasio-Cortez, and the decontextualised importing of American slogans suggests his staffers need to log off Twitter more often. Our system is not the US’ privatised nightmare (where funds are repaid to private banks, regardless of income, with interest), and refunding even well-off graduates is a terrible use of public money amid many more pressing demands on our dwindling public coffers.
But the kneejerk, unqualified defence of the current system from centrist wonks fails to recognise how far HECS has strayed from its original aims, imperilling equity and distorting student choices.
HECS was flawed but justifiable in its initial incarnation as a modest co-payment repaid upon gainful employment, but has since morphed into a complex, inequitable quagmire. A professor would surely give it a D-.
It started out B+
The original rationale, according to HECS architect Bruce Chapman, was to fund more higher education places while ensuring students only paid back their loan if and when their income was above average. They could then be said to have derived a personal benefit from their studies.
But HECS had problems from the outset. For starters, finance students who became merchant bankers paid the same nominal amount as graduate teachers, despite the former gaining a much larger personal benefit from their degrees. The banker not only paid off their debt quicker, but they also received discounts if they could afford to pay upfront.
John Howard later tried to align degree type to prospective income by introducing a tiered price structure. This has since been bastardised to the opposite ends, with the Morrison government subsidising agriculture and penalising those highfaluting gender studies majors.
HECS also weighs on graduates’ borrowing capacity just as many look to buy their first home, and concentrates repayments during many graduates’ most financially stressed period: when raising young children. Research shows this disincentivises new mums from returning to work.
The debt was also indexed to average prices, not wages, which sits at odds with its income contingency. If real wages are going backwards, why should students pay more?
A smaller tax on higher-earning graduates in perpetuity would have been a more efficient design — indeed, the Hawke government considered it. It also supported but abandoned a levy on businesses for the benefits they derive from an educated workforce.
Today, we should at least index loans to average wages and lower repayment rates to spread the burden across one’s working life. And thankfully, the government removed the upfront discount earlier this year.
Tradies in business class, baristas with PhDs
Instead of improving the system since 1989, subsequent governments made it much worse.
As the proportion of 25- to 34-year-olds with a tertiary degree grew to 54% by 2021, their wage premium significantly decreased. Meanwhile, male-dominated vocational pathways became more lucrative. There are now more men with TAFE certificates (Cert III to advanced diploma) earning above $65,000 than there are women with university degrees bringing in similar levels of income.
As Per Capita’s Shirley Jackson recently wrote, “the myth still persists that education is the best predictor of future employment outcomes, despite recent research showing that the causal relationship between education and employment has been eroded over time”.
This presented a fiscal dilemma: fewer graduates earning above-average incomes means repayments take longer. Rather than picking up the shortfall itself, the Morrison government dropped the repayment threshold to only $6000 above the minimum wage, abandoning the scheme’s original rationale. The amount of degree costs covered by students has also increased from around 20% to 48% over time.
Broken promises
As undergraduate degrees became more ubiquitous, demand for graduate degrees increased. Yet because Howard limited the number of Commonwealth-supported places in graduate degrees and introduced full fee-paying places (where students incur the whole cost on HECS, without a government contribution), many of our most educated students now exceed the total limit they can incur on HECS ($113,028 for most students). Any additional fees must be paid out of pocket.
This breaks HECS’ founding promise: that we could charge students without closing off access to working-class kids. Particularly in traditionally elite disciplines like medicine and law, access to the most prestigious courses is once again dependent on borrowing tens of thousands of dollars from one’s parents.
That’s without considering the biggest socioeconomic barrier: our paltry Youth Allowance and Austudy payments. The biggest predictor of dropping out of university is studying part-time, which many students do because they need to work to support themselves while studying. Again, students whose parents can support them financially are spared unsustainable workloads.
Stubbornly defending a broken system as if it were still the modest co-payment of the late ’80s is wilful blindness. An interim report on higher education is due to hit Education Minister Jason Clare’s desk next month ahead of the full report later this year. Let’s hope he takes to the system like an unimpressed professor with a red marker.
