Will they still pay up-front? An analysis of the HECS changes in 1997

Abstract

In the 1996-97 Federal Budget, the Government announced its intention to raise the annual Higher Education Contribution Scheme (HECS) contribution in 1997 by an average of $2,000 per year per student commencing tertiary studies in 1997. Furthermore, the minimum repayment income threshold will be reduced for all students and ex-students by almost $7,000 to speed up repayments. Given that the aim of the proposed HECS changes was to raise revenue to reduce the current budget deficit, it is important that these changes raise revenue quickly. On an ongoing basis, the best way to raise revenue is for the government to encourage up-front HECS payment by students. This paper examines the profiles of those students who paid their HECS liabilities up-front in 1992-93 and evaluates the effects of the proposed policy change on the probability of households choosing to pay their HECS up-front. The regression analysis, using the ABS's 1993-94 Household Expenditure Survey (HES) data, indicates that any increase in the HECS liability is, in fact, likely to reduce the probability of up-front HECS payments by households, holding everything else constant. However, given the increased amount paid, it is likely to increase government revenue from up-front payment. The effect of the reduction in the minimum repayment threshold is somewhat inconclusive from the model. Whilst the model shows that a household is more likely to pay its HECS liability up-front if the student in the household is earning above the minimum repayment threshold, it is conceivable that people with lower income are unlikely to be able to afford up-front payments. The model also shows that on average, single parent households are less likely to pay their HECS liabilities up-front compared to non-single parent households. The spouse's income, part-time tertiary studies and the student earning above the minimum HECS repayment income threshold were shown to increase significantly the probability of up-front HECS payment by the household.