The average cost of teaching a higher education program is about $12 ,000 p.a. However, by far the larger cost is the student’s contribution of time in the form of forgone income or forgone leisure. This could be costed in a number of ways, but minimally it should be costed at $38,150 p.a. (the taxable income threshold for repaying hecs debts) for a full-time student, which would be three times the teaching cost, and arguably it could be costed as high as average weekly earnings, which is currently about $54,000 per annum p.a. or four times the teaching cost.
Nonetheless, higher education students have contributed to the cost of their tuition for most of the history of tertiary education in Australia in all States other than Western Australia, which has a long tradition of free higher education. University tuition fees were charged in all States other than WA for the century from their establishment until their abolition in 1974. The Commonwealth reintroduced tuition fees in 1987 in the form of an up-front higher education administration charge of $250 for full-time students. This raised a comparatively small sum for the opposition it encountered.
In 1988 then Minister Dawkins commissioned Neville Wran to chair a review of higher education funding. The review committee recommended three principles (Wran committee, 1988):
1. employers, students and the community each benefit from higher education and should therefore contribute to its costs;
2. employers should contribute by a levy that was set at 1.5% of payroll;
3. students should contribute about one third of the cost of their course, but this contribution should be deferrable and repaid as a levy on students’ income tax when they earned better than average incomes.
The employers’ levy was introduced as the training guarantee, but it never achieved its goals and was later removed.
The third element, called the (students’) higher education contribution scheme, was an income contingent loan designed by Bruce Chapman, a member of the Wran Committee and an economist at ANU. Income contingent loans were proposed by Milton Friedman in 1955, by A T Peacock, J Wiseman and Alan Prest in submissions to the UK’s Robbins Committee on higher education in 1962 and by Bruce Johnstone in 1972. The US Federal government mounted a restricted income contingent loan programme at 10 post-secondary institutions from 1986 to 1992; Michael Dukakis proposed income-contingent loans repaid with social security payments in his unsuccessful US presidential campaign in 1988; Robert Reischauer developed the proposal more fully in 1989; and income contingent loans were the subject of a US Congressional Budget Office memorandum in 1994.
In the scheme recommended by the Wran Committee students would be charged at one of three levels, depending on whether the subjects they studied were of low, medium or high cost. The Government that introduced the scheme adopted the alternative considered but rejected by the Wran Committee, of setting hecs at the same rate for all subjects. But it adopted the other major elements of the scheme recommended by the committee, of setting hecs at an average of about 30% of teaching costs and setting the income at which graduates would have to repay their debt at a level where graduates were receiving better than average incomes.
These were changed in 1997 by the then Minister Vanstone. The income at which the hecs debt was repaid was reduced to $20,700 p.a., hecs charges were increased to an average of 50% of teaching costs a nd hecs wa s charged at three levels or bands:
band 1, $3,680 per eftsu
arts, humanities, social studies, behavioral sciences, education, visual/performing arts, nursing, justice and legal studies;
band 2, $5,242 per eftsu
mathematics, computing, other health sciences, agriculture/renewable resources, built environment/architecture, sciences, engineering/processing, administration, business and economics;
band 3, $6,136 per eftsu
law, medicine, medical science, dentistry, dental services and veterinary science.
Readers will note that some subjects are not charged in proportion to their teaching costs, as recommended by Wran and advocated by Chapman. Law is a low cost discipline but is included in the highest hecs band so that law students contribute 90% of the teaching cost of their subjects (Martin, 1996:10). Administration, business and economics are also a low cost discipline but are included in the middle band, so these students contribute 77% of the teaching costs of their subjects. Nursing is a medium cost discipline but is included in the lowest hecs band so that these students contribute only 34% towards their teaching costs. In fact, students of the highest cost disciplines now contribute the lowest proportion of their teaching costs: agriculture - 29%, dentistry - 33%, engineering - 35%, medicine - 33%, sciences - 35% and veterinary science - 33% (Martin, 1996:10).
Vanstone justified these changes by referring to the different income-earning capacities of graduates, arguing that law and business subjects should be in higher hecs bands because of the higher income-earning capacity of their graduates, and that education and nursing subjects should be in the lowest hecs band because of the lower incomes of their graduates. Some argue further that hecs for a favoured discipline should be lowered to encourage enrolments in that discipline or to encourage students to join socially important vocations.
These arguments are flawed. Higher payments by higher income earners should be recovered from higher rates of taxation on individuals' actual income, not from hecs which projects a rough estimate onto a group of students irrespective of their actual eventual income. Furthermore, there is no evidence that higher hecs has discouraged enrolments in the subjects in the high band such as law and medicine, and there is no evidence that lower hecs has encouraged enrolments in the subjects in the lowest hecs band.
A better way to increase the attractiveness of vocations is to forgive graduates' hecs debts for each year that they work in a special vocation. Thus, one may forgive 2% of graduates' hecs debts for each year they work as a maths or science teacher in a Government school, and forgive 5% of hecs debt, say, for each year they teach in a school or area designated as disadvantaged. Such an arrangement operates in the U.S.
HECS is described more fully at Commonwealth support for your place and HECS-HELP.
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