HECS debt and the Grattan Institute Report

The ALP government financed Grattan Institute has released its Mapping Australian higher education report. I eyeballed the report last night and it is a fairly dry report full of graphs and data. There should be little that is controversial. But it is. The author Andrew Norton – a former blogger here at the Cat – is responsible both for the report being good and sensible, despite the Grattan Institute’s otherwise left-wing pedigree, and the controversy.

The biggest, and current, controversy revolves around HECS.* Australia has an income-contingent government loans scheme to finance tertiary education. Right now the outstanding HECS debt is $26.3 billion. But of that amount $6.2 billion is considered to be a ‘bad debt’ – the government will never recover that money.

This is due to [HECS] debtors forecast to die or move overseas before their debt is repaid.

So why is that controversial? Well, Andrew Norton is known to have views of this issue – although they are not articulated in the report. The Australian picks up the story:

In a report to be released today, higher education expert at the Grattan Institute think tank Andrew Norton said the rising long-term cost of the scheme needed to be addressed. He wants the government to crack down on students who live permanently overseas and do not earn income here that would trigger payments on their income contingent loans.

Well – yes he does. But that isn’t in the report. He also wants the government to recover HECS from deceased estates – but that isn’t in the report either.

The government response is somewhat bemusing:

“This proposal comes from an institute that consistently pushes to shift the cost burden to students, which would see a drop in participation and Australia’s future prosperity reduced,” she said.

That depends on the discipline – the report does set out how much (domestic) students pay for Commonwealth supported places (I have summarised it below – from page 52).

So for domestic law and business students they already pay 83% of the Commonwealth cost. But there is another number that isn’t reported that I would love to see: the cross-subsidy from international students to domestic students. The overall number would be great, but by discipline would be fantastic.

So the Grattan Report is controversial for things it does not say.

To my mind the report does report something that should be controversial – the rise of research only staff within Australian Universities.

Despite the large increase in student numbers since the early 1990s, university hiring has emphasised research-only academic staff. Research-only staff made up 21 per cent of the academic workforce in 1992, increasing to 34 per cent by 2012.

I think there is a research-bubble within Australian universities – not that academics shouldn’t do research, but that there is too much emphasis on doing government-funded research. Here is the problem:

The massive growth in research only academics is not matched by a massive growth in government funding. Nor should it be – but universities are taking on large numbers of staff whose jobs can only be financed by subsidy – either from international students or government.

* Yes – i know – it isn’t actually called HECS anymore.

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63 Responses to HECS debt and the Grattan Institute Report

  1. Grey

    [Comment deleted - off topic. Sinc]

  2. Jim Rose

    New Zealand is chasing in the Australian courts New Zealanders’s living in Oz who owe student loans. the New Zealand court judgment is transferred to Australia under existing laws, where it is then enforced.

    Measures can involve charging orders on a property, deducting money from a salary, seizing assets such as vehicles and even bankruptcy.

    The same system is planned for New Zealand student borrowers living in Britain.

  3. Token

    Does Francois Hollande know about this Jim? I’m sure he’d like to give Asterix and Obelix some of that.

  4. They could easily enlist the cooperation of DFAT and cancel (or threaten to cancel – that might be enough) the passport of any Australian who has outstanding HECS debts. They do it with tax cheats and “deadbeat dads”, after all.

  5. Grey

    Perhaps I didn’t make my comment clear since it was very on topic.

    The rise of research only positions has nothing to do with HECS but a result of increasing investment in research and the questions that research seeks to answer (including treating cancer).
    Surely a wish to slash the NHMRC and ARC budgets (which can be all that complaining about the growth of research only positions can mean) is separate issue from HECs repayments?

    They could easily enlist the cooperation of DFAT and cancel (or threaten to cancel – that might be enough) the passport of any Australian who has outstanding HECS debts. They do it with tax cheats and “deadbeat dads”, after all.

    1. You will find that the majority of uncollected HECs debt is probably Australian residing and just never earn enough to repay – under the terms the loan was made.
    2. I am not sure that DFAT can or should cancel passports – except perhaps if the target returns to Australia on holiday and they wish to prevent them from leaving again. It would create all kinds of headaches for the country that they were residing in, who probably wouldn’t appreciate it all. Imagine if countries began to cancel passports of people residing in Australia? I imagine we would find that annoying too. People here get upset when asylum seekers rip up their travel documents, they can hardly then think it is OK for the Australian government to do it.

  6. Pyrmonter

    As a practical issue, there is a problem with the structure of the scheme. The “loans” are, in form, taxes,which will, in most other common law countries, be unenforceable in local courts: there is a long-standing principle of the conflicts of laws that the courts of one country won’t enforce another’s tax obligations: Government of India v Taylor.

  7. Pedro

    “The massive growth in research only academics is not matched by a massive growth in government funding. Nor should it be – but universities are taking on large numbers of staff whose jobs can only be financed by subsidy – either from international students or government.”

    Grey, the truth or otherwise of that claim is a matter for evidence. If it is true then this cannot be correct:

    “The rise of research only positions has nothing to do with HECS”

  8. Sinclair Davidson

    Grey – the comments about research only academics is an after thought as to what should be controversial not what is.

  9. Grey

    Grey, the truth or otherwise of that claim is a matter for evidence. If it is true then this cannot be correct:

    Of course it is largely funded by Government subsidy – NHMRC and ARC grants. I am not sure what Dr Davidson has in mind when he talks about not showing massive growth – but his graph of NHMRC funding shows a 3 fold increase in real terms from 2001 to 2012 – which does not prima facie seem inadequate to largely fund the increase in research only staff.

    Perhaps universities can use some profits from international students to fund it also, but this is going to be minor compared to project specific grants. And what are they expected to do with profits from international students – return a dividend? Pay large VCs enormous salaries ? (oh wait…)

  10. Seb

    Yes the name HECS has been given the ALP PC treatment.

    It is now called HELP.

    How quaint.

  11. Chris

    Seems pretty reasonable to seek HECS repayments from those who move overseas. Perhaps a minimum amount of year could be estimated for those who are overseas and simply requiring collection when they visit Australia (as the vast majority are going to want to do at some point in the future) would be sufficient.

    As for recovering money from estates I think in most cases that is also reasonable and addresses the issue of very elderly people studying at uni who have little to no chance of earning an income to repay the debt. Perhaps to address some of the edge conditions (eg death in young family) they could limit the percentage of a deceased estate that would be taken to repay the HECS debt..

  12. Harold

    These hard objective numbers come This proposal comes from an institute that consistently pushes to shift the cost burden to students, which would see a drop in participation and Australia’s future prosperity reduced,” she said.

    That’s better, we can ignore it now.

  13. I see no reason that overseas income shouldn’t be assessed for the purposes of recovering HECS debt, even if taxation is generally not levied upon it. The basic understanding is that it is a debt that is repaid as the debtor is able, judged on their income. The source of that income shouldn’t matter.

  14. Jannie

    I reckon large numbers of young people are being conned into attending university in the expectation they will obtain some kind of career training. Instead they become politicised, entitlement sensitive, half educated and completely unskilled.

    Why would any government be subsidising kids studying such barriers to useful employment as Humanities, Behavioural “science”, and social studies? There was a time when excellent results in such subjects may have indicated good communication and research skills from a prospective job applicant. Now they only prove the applicant is political trouble, more interested in the Union than in the business. In recent years CVs with that sort of detail are not even interviewed – except in the public service I suppose.

  15. Econocrat

    HECS is the only middle-class welfare I get.

  16. Token

    Why are the subsidies courses except business so high?

    You would expect a better yield from courses that provide a launch pad for higher income such as medecine & engineering. What’s happening?

  17. Milton Von Smith

    What is most striking about that table is the massive difference between the student share for business/law courses versus everything else.

    It suggests either that (i) the government doesn’t think that external returns to those subjects are very high, relative to the rest and/or (ii) there is some form of price discrimination and cross-subsidisation happening.

  18. Token

    Another case of low income people subsidising the middle class of today and tomorrow?

  19. Nonsense

    Seb

    HECS was renamed HELP by the Howard Government at the same time as they introduced income contingent loans for full fee paying places.

    The level of subsidy does seem to ignore the income contingent part of the loan – ‘Jimmy is studying (insert subject) that won’t lead to a high paying career, so we set the fee level lower’. You could have the same fee for every course, but those who earn more money sooner will pay more in real terms (as the indexation of the debt is so low).

  20. Is the increase in research at all funded by increased industry participation in funding?

  21. It suggests either that (i) the government doesn’t think that external returns to those subjects are very high, relative to the rest and/or (ii) there is some form of price discrimination and cross-subsidisation happening.

    Or that business/law is a low cost course to deliver.

  22. Entropy


    Why would any government be subsidising kids studying such barriers to useful employment as Humanities, Behavioural “science”, and social studies?


    A domination of the fact that:
    law/business courses cost a lot less to operate than say, medicine, with the consequence the differential between cost and HECS is greater in a course like medicine;
    And a bit of targeting to encourage uptake in courses that actually make some sort of contribution to society :)

  23. Entropy

    Domination=combination.

  24. Craig Mc

    Business law education is probably difficult to transfer outside Australia, so most graduates might stay and work where they’re liable for HECS repayment. What use is four years of Australian tax law in New York?

    Another factor is that those graduates could possibly be getting paid better, faster – enabling them to repay HECS before they get itchy feet.

  25. Token

    …so most graduates might stay and work where they’re liable for HECS repayment.

    A sizable % of education, allied health and nurse employees stay in Aus and are employed by a single employer (state health/education systems) for the whole of their career.

    ????

    A domination of the fact that:
    law/business courses cost a lot less to operate than say, medicine, with the consequence the differential between cost and HECS is greater in a course like medicine;

    Engineering? Education?

    Can we also talk about the flood of kids who trained in the expensive and mostly unneeded fields like CSI.

  26. tgs

    Why would any government be subsidising kids studying such barriers to useful employment as Humanities, Behavioural “science”, and social studies?

    The government would argue that there are significant positive externalities associated with these courses such that the benefits from studying them accrue both to the student and to society in general. In order to encourage the socially optimal amount of students studying these courses they receive significant subsidisation.

    I suspect that they would also argue that a much larger proportion of the benefits from studying law and business are captured by the student with less flowing to society in general – the presence of less positive externalities means they receive far less subsidisation.

    Whether or not you buy into this rationalisation is entirely another matter – but I would suspect that is the thinking behind it.

  27. Engineering? Education?

    Engineering certainly. Education, not so much.

  28. Andrew

    Can we also talk about the flood of kids who trained in the expensive and mostly unneeded fields like CSI.

    Do you think that applies to science field in general? Of course the demand for doctors and engineers is high but not an overly high percentage of students qualifying for those courses, you have to wonder if the high number of science students really matches the employment opportunities?

  29. Julian McLaren

    I think it is important to note that the HECS debt sits on the Federal Government balance sheet as an “Asset”. Accordingly, if $6 billion is unrecoverable, provision should be made to write this off immediately as an expense. Wow, wouldn’t that do Wayne Swans head in…

  30. tgs

    I think it is important to note that the HECS debt sits on the Federal Government balance sheet as an “Asset”.

    Why is asset in quotation marks?

  31. Token

    Why is asset in quotation marks?

    No business that follows the IAS would be able to class all costs on projects like the NBN as assets. They follow different standards in the givernment.

  32. Dexter Rous

    I don’t understand why non-Australians get any HECS/HELP.
    I know of older Australians who take up University courses ” because they can”. These parasites have no intention of ever refunding the cost of their amusement, and are often too old to work long enough to pay their debts to us; the mugs who pay the taxes.

  33. Skuter

    The simple solution is merely to add HELP debt to departure tax. Immediate payment in full otherwise, you can’t board your plane. For those already overseas, tell them that the moment they set foot back in Australia, payment is immediately due in full. Only way to get out of it is to agree to have overseas earnings garnished.

  34. MattR

    I don’t understand why non-Australians get any HECS/HELP.

    They don’t, only and Australian Citizen can get HELP.

    The problem is with people taking out the debt then moving overseas for their entire career.

  35. Grey

    I expect the major part of that 6 billion will be people who never earn significantly above the repayment threshold of at present $50 000 to pay off their debt.

    Of people who go overseas, in the long run I expect the number who relocate permanently and never return to Australia and also never repay HECS is quite low – but difficult to model. If you Australian there must be few countries in the world apart from possibly North America that you would want to relocate forever and never return. Britain – shudder!

    Then in terms of chasing people overseas you would have to weigh up how much it costs to chase them, how big a pot of money is theoretically available and much could be reasonably be expected to be returned and a potential downside of creating barriers for Australians to return home in the future The best way is to create a system with mild sticks and mild carrots.
    The mild stick could be a slightly increased interest rate if you aren’t resident in Australia, the mild carrot would be this slightly increased interest rate is written off if you make regular repayments while overseas or demonstrate you are in situation (Gap year travel, further study or not earning) not to reasonably meet these payments.

  36. Grey

    The problem is with people taking out the debt then moving overseas for their entire career.

    Yes, but I don’t think this problem is 6 billion or even 1 billion.

  37. Craig Mc

    I think we’re looking at it wrong. Instead of chasing useful HECS refugees overseas, why not lower the HECS income threshold to drive unemployable HECS deadbeats away as well?

  38. Boambee John

    Jannie @1314:

    I suspect (as an ex-public servant) that part of the significant growth in public service employment recently is to “soak up” otherwise unemployable humanities graduates, who are given jobs that once would have been done by those who left school after Year 10.

  39. Johno

    “This proposal comes from an institute that consistently pushes to shift the cost burden to students,

    This statement should be read as;

    Labor Minister not concerned about making good use of taxpayer’s money

    But that wouldn’t come as any great surprise to anyone!

  40. Boambee John

    PS: More of that research money should go to the NHMRC and less to the ARC.

  41. mundi

    Why can they never say the truth? The $6billion not being paid back isn’t from people moving over seas – its from people never getting a job that pays high enough to break the threshold. Alot of women get degrees to get high paid part time work while rising a family, they are not likly to ever pay a single cent back.

  42. Jannie

    In order to encourage the socially optimal amount of students studying these courses they receive significant subsidisation.

    tgs, ‘socially optimal’ sounds suitably Orwellian or newspeakish talk for “sufficient control of the political economy”.

    No doubt about it B John, they have a virtuous knitting circle of otherwise unemployable graduates whose main skill is to obtain government money for sometimes unstated but always unmeasurable government objectives.

  43. You don’t have to chase them they will want a passport at some stage in most cases unless they want to become non-citizens then you can’t get the money. Don’t re issue them a new passport then they will be deported to Australia.

  44. Abu Chowdah

    I suspect (as an ex-public servant) that part of the significant growth in public service employment recently is to “soak up” otherwise unemployable humanities graduates, who are given jobs that once would have been done by those who left school after Year 10.

    The APS I am familiar with is wall to wall lawyers, engineers, economists, teachers and psychologists.

    But points for effort.

  45. Driftforge

    PS: More of that research money should go to the NHMRC and less to the ARC.

    Because we need more research into medical vagaries and less into useful stuff?

  46. Token

    I know of older Australians who take up University courses ” because they can”.

    They should be redirected to I-Tunes U. There is a course about most topics available which one does not need to pay more than a nominal fee for.

  47. Andrew

    I don’t understand why non-Australians get any HECS/HELP.

    International students don’t get HECS-HELP, they have to pay their student contributions straight away. That is why the Government does not mind accepting more international students.

  48. Boambee John

    Driftforge:

    a): look at some of the projects that the ARC supports;
    b): you must be young and healthy to be so contemptuous of “medical vagaries”; remember we all get sick and grow old.

    Abu Chowdah:

    Look at the human resources and administration areas!

  49. Does anyone know how the US collects tax from those working overseas? If it works copy it.

  50. Abu Chowdah

    Sure, John. But the APS is full of every discipline you can imagine.

    The problem, as you suggest, is too many people have degrees.

  51. Sinclair Davidson

    I was under the impression that individuals with PR could access HECS too.

  52. Driftforge

    a): look at some of the projects that the ARC supports;

    There’s a mix. That’s what you expect from a public institution. Suspect you could do the same with the NMCEH.

    b): you must be young and healthy to be so contemptuous of “medical vagaries”; remember we all get sick and grow old.

    Sure, we all get old. We also all use bridges, take advantage of scientific developments, depend on computers and government for way too much.

    It’s not exactly an argument for funding health to the exclusion of other useful areas.

  53. I was under the impression that individuals with PR could access HECS too.

    Well they can get the dole so I can’t see why not.

  54. Rob

    Itunes U is free, as are the more useful Coursera and Udacity (with very rare exceptions where you pay to do the exam at a testing centre)

  55. Boambee John

    Abu Chowdah:

    And the problem of too many degrees is set to worsen, as a result of government policy, to increase the numbers at university! Do we really need registry staff with arts degrees?

    Driftforge:

    I didn’t say fund health research to the exclusion of all other, just change the balance!

  56. rebel with cause

    The benefits to university education are mostly, if not entirely private. So it follows that the burden of payment should fall on the student. While I may have been enriched by my university education, it is very difficult to see what positive externalities my education has had for society and therefore why it should have been subsidised.

  57. tgs

    tgs, ‘socially optimal’ sounds suitably Orwellian or newspeakish talk for “sufficient control of the political economy”.

    It is an economics term – used when one is making the distinction between social and private costs, for example due to the presence of externalities.

    The socially optimal level of production of a good or service is one where the marginal social cost is equal to the marginal social benefit.

    Nothing Orwellian about it, really.

  58. tgs

    Nothing Orwellian about it, really.

    I should stress that it is a theoretical term.

  59. Andrew

    I was under the impression that individuals with PR could access HECS too

    According to the website and what I’ve read, these are the people who are eligible for HECS-HELP

    – be studying in a Commonwealth supported place;
    – be an Australian citizen or permanent humanitarian visa holder;
    – enrol with a provider in each unit, by the census date;
    – read the Information for Commonwealth supported students and HECS-HELP booklet; and
    – submit a valid Request for Commonwealth support and HECS-HELP form by the census date (or earlier administrative date) to your provider.

    International students don’t get any assistance

    International students are not eligible to access a Higher Education Loan Program (HELP) loan for their study, and must pay the overseas student fees charged by their provider.

  60. mundi

    Isnt the original post wrong?

    The percentage in the table is the amount students pay through Hecs. the remainder is paid for by government.

    the reason i know this is i was just looking at engineering degrees that have total help loans of $30k but for which the univerdity recieves $102k in funding.

  61. johanna

    HECS/HELP is a poorly designed system, because it punishes people for increasing their earnings. As others have mentioned, many women with degrees work part-time or not at all for many years while raising their kids. If they do get a decent-paying job, they then get slugged with extra tax. And, semi-retired or retired people need not even think about ever paying it back. Now we have their greedy kids demanding that that their estates be exempt from paying the bill.

    People should be required to repay something towards their HECS debt out of any income they earn, no matter how little. Alternatively, they should be required to take out a commercial loan to pay their fees.

    As it stands, the system is an incentive for worthless degree-factories to enrol anyone and everyone, and for students to find ways to keep their incomes below the threshhold or leave the country for better paying jobs.

  62. Tony Healy

    I was under the impression that individuals with PR could access HECS too.

    Sinc, I was under that impression too. There used to be schemes where students would start a course as a fee-payer, then gain Permanent Residence (PR) and have the government pay the remainder of the course. A sweet deal.

    However on doing a quick Google, I see there was some sort of crack down, and that now international students are only eligible for HELP, and only for so-called “bridging study.”

    It sounds like another of the rorts the government decided to fix before the papers found out about it.

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