Read time: 6 mins
Australia’s income-contingent student loan program works, yet it’s a consistent target of dissent among graduates with a loan. Policies that consider how HELP loans are viewed could improve compliance with the scheme and, by extension, the tax system overall.
Read time: 6 mins
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There’s a disconnect between how policymakers and graduates view the fairness of income-contingent loans.
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Policymakers are likely to note that HELP debts don’t disadvantage graduates in terms of starting a family and buying a house. But graduates don’t typically evaluate fairness through a strictly economic lens, instead focusing on perceived social disadvantage.
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Understanding how future tertiary students perceive the scheme’s fairness would help it, and the tax system overall, avoid dissent that can lead to non-payment.
Australia’s income-contingent loan scheme – the Higher Education Loan Program – does two things.
For the Australian Government, it shifts part of the cost of higher education from the taxpayer to students.
For students, it provides access to post-school education, and all its associated life benefits, with no up-front cost. Those from low socio-economic backgrounds, who can’t pay fees, are able to attend universities and other educational institutions.
The scheme itself was originally designed by Emeritus Professor Bruce Chapman from the ANU College of Business and Economics in 1989.
ANU research has shown that policymakers mostly see the scheme as equitable, because they tend to see fairness in terms of opportunity for higher education, employment prospects, income, career success, marriage, and family.
In other words, government interprets fairness as meaning that those with a debt aren’t disadvantaged on objective indicators when compared to others.
On the other hand, ANU research uncovered that graduates don’t see fairness the same way. This affects their perceptions of the loan system.
When surveyed, graduates with a HECS-HELP debt mostly evaluated fairness by comparing their take-home pay to their peers. Perceptions of disadvantage in their social group were their primary way of testing fairness, rather than economic measures.
This could cause problems for government. For instance, seeing HELP rules as unfair was correlated with low regard for the value of the policy, and with feeling a lack of moral obligation to repay a loan.
While graduates with debts accepted that they’ve benefited from university, they often viewed the system as unfair. Many believed that payments aren’t invested back into higher education to improve its quality.
As a group, they saw themselves as contributors to society, and said it was unfair to impose the financial burden of repayment on current and future generations of students.
Despite the zero-interest, income-contingent nature of their loan, they felt the circumstances were unfair when they compared their lives with those of their peers who were able to pay their fees upfront.
The scheme’s success in delivering funding to the sector without affecting objective economic milestones for students, even over 30 years, seems at odds with such perceptions among loanees.
On the other hand, the implementation of income-contingent loans has been modified many times, not always in the spirit of its original design. The scheme has also faced unanticipated problems, such as failures to repay debt and links with tax avoidance and evasion.
Overall evidence indicates that perceptions of unfairness are common among graduates with a loan. This should be a consideration for policymakers considering tax compliance and Australia’s income-contingent loan system.
"Seeing HELP rules as unfair was correlated with low regard for the value of the policy, and with not feeling ‘shame’ about failing to pay back a loan."
