Expert opinion and common sense are at one in telling us that the Australian-pioneered income-contingent loan system — better known here as HECS — is the best way for governments to fund higher education because it is both fair and affordable.
It allows students to go to university without paying fees upfront, thus lowering the poverty barrier. And the fact graduates eventually repay their debt when they earn a decent salary ensures the cost to taxpayers is not prohibitive.
The mystery is why candidates in the US Democratic primaries — who are offering policies to deal with the funding and debt mess that is America’s higher education system — haven’t twigged to HECS.
Possibly it’s because, in the highly polarised US political environment, sensible but moderate policy proposals don’t seem to find much traction.
What we have from the Democrats’ left wing instead are promises about university fees and student debt that are mind-bogglingly impractical.
Bernie Sanders promises free tuition in public universities and cancellation of the $US1.6 trillion ($2.3 trillion) worth of existing student debt. Elizabeth Warren is going nearly as far, also promising free tuition and massive debt forgiveness. Neither of them is moved by the argument that their policies carry with them an enormous subsidy for the middle class, which dominates university enrolments. They would eat up resources that could be far better spent on the education and health of America’s millions of needy.
Moderate Democratic candidates also promise larger government subsidies for higher education, although less than Sanders and Warren.
None of them has owned that the obvious best solution is an Australian-style comprehensive income-contingent loan system which relies on tax data to determine graduates’ income and is repaid through the tax system.
At one stroke it would solve the equity problem in US higher education by requiring repayment when graduates could afford it, and it wouldn’t break the budget.
There was one recent US presidential candidate who promised a comprehensive income-contingent loan system to fund tuition fees. Can you guess who?
I didn’t know until this week when Australian National University economist Bruce Chapman (who designed the original HECS system) told me, but it was Donald Trump who made the promise in 2016. Nothing has come of it.
Since the Clinton years the US has had an option to repay student loans on an income-contingent basis. It was extended during Barack Obama’s presidency.
But it’s highly complicated. Entry is not automatic. And if you haven’t paid off your debt after 25 years it’s considered to be income and you have to pay tax on it.
The scheme hasn’t been widely taken up and has done little to solve America’s tuition fee and student debt problem.
Chapman despairs about the US system.
“There are at least nine to 10 million people whose lifetime credit reputation is damaged because of student loans. That can’t happen under HECS,” he says.
When will America learn?
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