Loan schemes in crisis: countries look to HECS for solutions

Countries around the globe are looking to Australia for a solution to growing problems with university student loans. 

The Higher Education Contribution Scheme (HECS) opened up higher education to millions of Australians who might otherwise not have been able to afford it. 

Variations of income-contingent loans are now in place in eight countries, with varying degrees of success. 

The system’s inventor, Professor Bruce Chapman believes some of the schemes need tweaks. 

He says there is no one-size-fits-all income-contingent loan scheme. “Many countries have student loan systems and face problems with default and great hardship,” he says. 

“We’ve done enough statistical work on these countries to know with some confidence how to design an income-contingent loan scheme like HECS. 

“The scheme would not only offer protection to the debtors but we think it will make the government revenue higher than it otherwise would.” 

HECS has given Australians a simple way to pay for their tertiary education since 1989. It is now known as HELP – Higher Education Loan Program. 

A student will start to pay back their debt only if they have a relatively high income in the future. 

The threshold for repayments to begin is currently $55,874 per year. The Federal Government is proposing to reduce the threshold to $45,000 per year. No HECS debtor has to pay in any period when they earn less than that. In some cases a very small minority don’t pay back any of their debt. 

The HECS scheme was designed by Chapman for the Hawke government and has become a household name. 

It has been adapted for use in New Zealand, England, Hungary, South Korea, Japan and the Netherlands. The schemes in these countries are generally universal. Research is under way into its adoption by other countries that want to follow suit. 

“Just about every country in the world has a loan scheme which is in trouble or in crisis.”

Professor Bruce Chapman

Late last year the ANU College of Business and Economics invited higher education experts and ambassadors from Colombia, Malaysia, Chile, Japan and Brazil to a forum on the economics of student loans. The forum discussed the successes of the system as well as countries where it has run into problems, to work out what needs to be done to create a successful income-contingent loan scheme in each of the countries. 

Professor Chapman told the forum there were challenges around the world with access to university education and affordable tuition. In many cases the lack of access to and affordability of higher education increased inequality in society and created hardship for many graduates. 

“Many countries in the world have a student loan system to help poor people access university education,” he said. “Just about every country in the world has a loan scheme which is in trouble or in crisis. 

“This forum is a chance to have a policy discussion on higher education financing, while getting to the core of each country’s concerns, interests and problems.”    

Japan faced challenges when it introduced a type of income-contingent loan program in 2017. Like the system operating in South Korea, only students with a certain family income are eligible. 

Chapman says the non-universal system in Japan leaves out a large number of people who could benefit from income-contingent loans, such as women and people from low-income backgrounds. 

“The current Japanese funding system is complicated and significant problems remain, and we are working with researchers to implement a much fairer scheme for all,” he says. 

Despite these types of problems, Chapman believes the HECS system has opened up the opportunity for millions of people around the world to access higher education and a better quality of life.