Changes to HECS could lead to university profiteering, says its architect Bruce Chapman

ANYONE in Australia can grow up to have an education and make something of themselves. But is all that about to change?

FOR the first time in his life Bruce Chapman is worried about HECS — the scheme he designed in 1989 — and believes that fee changes could lead to university profiteering.

The economist, who was the architect of HECS, now called the Higher Education Loan Programme (HELP), said the Abbott Government’s plans to deregulate fees could see students paying more for their degrees than what universities spent on delivering them.

“If universities have price discretion they will all take it ... and could actually end up charging more than what it actually costs,” he said.

Since the Hawke Government introduced HECS in 1989, Prof Chapman has watched many governments tinker with the scheme but said he had never been worried about the changes — until now.

“The system hasn’t changed in any fundamental ways ... nothing until Tuesday (Budget night) was a problem,” Professor Chapman said.

This includes measures introduced in 1997 under the Howard Government that saw fees for some degrees double.

RELATED: What the Federal Budget means for you

Young people protest against the Abbott Government’s Budget as part of March in May. Photo: Lisa Maree Williams/Getty Images

Prof Chapman, who was also a senior economic advisor to former Labor prime minister Paul Keating, said the impact of current proposals to let universities set their own fees would vary among institutions, with some putting up prices more than others.

But he said he would be surprised if fees didn’t at least double at ‘prestigious’ universities like the University of Sydney, Australian National University and Monash.

At worst, prices could triple, forcing up the cost of some degrees to $100,000.

Currently a five-year law degree at the University of Sydney costs $37,715.

Students will also pay a larger share of the cost of their education because the government plans to withdraw about 20 per cent of its contribution, pushing the cost back on to them.

“It will certainly take a lot longer to pay off ... at the moment it takes about eight years, this will increase to about 13 years,” Prof Chapman.

This means a law student who graduates aged 23, may be 36 years old before they pay off their debt. The burden may also hinder graduates’ ability to save for a deposit to buy a home.

“Some people won’t pay it off, by the time they are 65 years old, if they have relatively poor jobs, their debts will never be paid,” Prof Chapman said.

“It (education) will have no affect for that group except that they’ve got a big debt, whether this might cause psychological damage, I don’t know.”

Prof Chapman said the decision to charge interest on the loans for the first time could also be “inequitable”.

At the moment students pay the inflation rate on their HECS/HELP debts, which is about 2.9 per cent. From 2016 students will be charged the 10-year government bond rate (currently at 3.8 per cent) up to a maximum of 6 per cent.

“HECS was designed to protect people from poor outcomes, they pay it as a proportion of their income, but subsidies, such as the interest rate, are now gone,” Prof Chapman said.

In fact Prof Chapman said the scheme had been an Australian success story, copied around the world and he thought the current rules were “fair and equitable”.

The Abbott Government has said it wants to change the rules to “rebalance the Commonwealth’s contribution towards course fees” and that $1 of every $5 in extra revenue raised by universities would go towards a scholarship program for disadvantaged students.

“Over their lifetime graduates earn on average around $1 million more than school leavers,” the Budget papers state.

It said universities could not compete with the best in the world within the constraints of the outdated funding system.

“We are vying for students in a fiercely competitive international market.

“Currently, our universities have limited prospects of competing with the best in Europe and North America and the fast developing universities of Asia.”

Some university students may never pay off their HECS debt.

But Prof Chapman said that while students would probably still attend university as they “don’t have anywhere else to go”, anxiety levels could increase, especially among students who did not manage to complete their degrees, “at the injustice of it all”.

The Greens have also done modelling on the impact of the changes that shows poorer students would be hardest hit.

A graduate with a $34,000 debt and a starting salary of $75,000 would take 20 years to pay off their debt, paying $20,000 in interest.

But a student with a starting salary of $50,000, who only received pay rises in line with inflation, would never pay off their HECS/HELP debt because interest would be higher than their repayments.

Further modelling released yesterday revealed that women would be further impacted because they generally take a year off to have children and work part-time for at least two years after that.

This means that a woman who graduates from university with a teaching degree costing $49,244 and a starting salary of $59,706 would take 23 years to pay off her debt, compared to 19 years for a male teacher.

Her interest bill would also be $6,200 more than a male student’s.

The changes to the HECS/HELP scheme were unveiled in the Federal Budget last week.

It included a 20 per cent reduction in the Federal Government’s contribution and interest charges of up to six per cent to be allowed on the debts. The income threshold at which students start paying back their debt will be lowered to $50,638 from July 1, 2016. The cut-off for 2014-15, was set at $53,345.

From 2016, universities will also be allowed to set their own fees.

However, it is unclear whether the changes will go ahead as Labor, the Greens and politician Clive Palmer have all said they oppose the policies and would block the legislation.

Originally published as Changes to HECS could lead to university profiteering, says its architect Bruce Chapman