HECS creator Bruce Chapman opposes savings

HECS architect Bruce Chapman has cautioned against major changes to the interest-free student loans scheme.

HECS architect Bruce Chapman has cautioned against major changes to the interest-free student loans scheme amid calls for its rising cost to be reined in by charging a loan fee upfront.

The Australian National University economist warned that significantly changing what was now called the Higher Education Loan Program risked undermining student certainty.

"Changing HECS a lot isn't good public policy because it is an instrument to minimise uncertainty," Professor Chapman said.

He noted that while the interest subsidy enjoyed by students was probably too generous, he said it would be better public policy to preserve certainty and not change the system.

However, Andrew Norton of the Grattan Institute said the Gillard government's policy to expand participation by uncapping the supply of funded places had increased the cost of HELP to the point where savings were needed.

Mr Norton supports the uncapped policy but said he was concerned that without a more efficient loan system, future governments would cut spending elsewhere in higher education or reintroduce caps. Last year, the government angered universities by delaying a promised increase in research spending at a budget saving of $500 million.

As reported in The Australian yesterday, that part of the $26.3 billion in student debt not expected to be repaid ballooned last year by almost $1bn to $6.2bn. The government now expects 18 per cent of new debt not to be repaid, up from 16 per cent in 2010-11.

In a report released yesterday, Mr Norton estimated the total cost of HELP, including the interest rate subsidy, at nearly $1.6bn last year out of total government spending on higher education of $12.4bn.

In the budget estimates the government forecasts the HELP cost to rise to $1.78bn this fiscal year before reaching $2.39bn by 2015-16.

Mr Norton said undergraduates at private institutions who were not on a government place, as well as some vocational students, already paid a loan fee of 20-25 per cent on their HELP loans.

He said as a first step, a loan fee could be charged to full-fee-paying postgraduate students; $442m in new HELP loans were given to postgraduates in 2010 and charging a loan fee was unlikely to discourage students.

"If we can do it at a lower cost, that seems to make a lot of sense," he said.

The National Union of Students said it was unreasonable to charge students more. "Students at university are paying more for their education than ever and it now takes around a decade for graduates to pay off the average HECS debt," said NUS national president Jade Tyrrell.

The government is forecasting the average HECS debt at $16,100, to be paid off in 8.4 years.

Mr Norton has also called for a crackdown on graduates not repaying by living overseas. Tertiary Education Minister Chris Evans has said the government is considering ways to extract HECS repayments from graduates abroad.

New Zealand and Britain have largely copied Australia's HECS system but they both require graduates living overseas to make repayments. British graduates in Australia must repay a default monthly payment equivalent to $371 unless they have submitted income details to calculate their repayments. New Zealand graduates living overseas have to repay $NZ1000 ($795) to $NZ3000 a year and are charged 6.4 per cent interest.