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Redefining HECS

07 August 2014

HECS architect and Crawford School Professor Bruce Chapman and Dr Timothy Higgins from ANU College of Business and Economics have outlined a new student loan interest rate system that could be a game-changer for the government.

Following stories in this week’s media Chapman shared his proposal during an exclusive interview for the Crawford Conversation podcast series.

The detailed proposal to Education Minister Christopher Pyne outlined modelling which showed how the government’s plan to apply real interest rates to student debts will leave poor graduates paying 30 per cent more for a degree than their high-income peers.

Instead, Chapman presented two alternative interest rate proposals that reduce inequity concerns and only have a small impact on the budget.
The alternatives were either charging a higher interest rate once graduates reach the repayment threshold (approximately $50,000) or applying a one-off surcharge on graduate loans with the latter option wiping inequity altogether.

“That unambiguously will never allow the debt to go up after the beginning and protects the poor. Both proposals have been designed to take away the regressive impact of the bond rate which could be quite substantial for particular groups,” said Chapman.

“The ones we’re most worried about are those who enrol and incur a debt but don’t graduate. Yet they still have to pay it and have relatively poor jobs because they didn’t graduate.

“[We’re also worried about] people who take time out of the labour force to look after children,” said Chapman.

Chapman said the HECS system was being undermined with many forgetting the arrangement was conceptualised to act as an insurance mechanism.

“When we think about the HECS system, we have to think of it as insurance, that’s what it is. If you don’t do well in the labour market, HECS protects you. If you don’t ever earn $50,000 a year, you never pay anything for the rest of your life. The system is basically designed to protect people from bad luck and bad circumstances,” said Chapman.

Are you interested in these ideas? Bruce Chapman teaches Case Studies in Economic Policy (POGO8210) and Economic Seminars (IDEC8024).

Click here to listen to the Crawford Conversation with Bruce Chapman.

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