Post on 26-Dec-2015
Tertiary Education Financing Models Around the World:
Conceptual basis, policy implications and recent international experience
Bruce ChapmanCrawford School of Economics and Government
The Australian National UniversityCanberra ACT 0200
(Bruce.Chapman@anu.edu.au)
Public and Private Mechanisms for Financing Higher Education Santiago, November 24, 2009
OUTLINE
1.- The Shared International Challenge
2.- Costs and Benefits for Students
3.- Loans: The Need for Government Intervention
4.- The Problems with Government Guaranteed Bank Loans
5.- The Costs and Benefits of Income Contingent Loans
6.- An ICL Case Study: Australia`s HECS 1989-2005
7.- The Critical Role of Collection
8.- Changes Internationally Towards ICL
9.- Conclusions
1.- The Shared International Challenge
• unmet demand for places
• inequitable access
• shortage of finances
• an emerging concensus for student contributions
2.- Costs and Benefits for Students
• costs: foregone earnings (+ tuition)
• benefits: additional earnings
• summary: Figures 1 and 2
• costs mean financial assistance is necessary
• net benefits imply the case for a charge
Figure 1Typical Female Age-Earnings Profiles: 2001
0
10
20
30
40
50
60
18 20 22 24 26 28 30 32 34 36 38 40 42 44 46 48 50 52 54
Age
Ps/Hr
High School Complete
University Complete
0
10
20
30
40
50
60
18 20 22 24 26 28 30 32 34 36 38 40 42 44 46 48 50 52 54
Age
Ps/Hr
High School Complete
University Complete
Figure 2Typical Male Age-Earnings Profiles: 2001
0
10
20
30
40
50
60
70
18 20 22 24 26 28 30 32 34 36 38 40 42 44 46 48 50 52 54
Age
Ps/Hr
High School Complete
University Complete
Figure 3 Typical Male Age-Earnings Profiles: The UK 2003
0
2
4
6
8
10
12
14
16
18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50
Age
Poun
ds/H
r
Bachelor A Level
Figure 4Typical Female Age-Earnings Profiles: The UK 2003
0
2
4
6
8
10
12
14
16
18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50
Age
Poun
ds/H
r
Bachelor A Level
2.- Costs and Benefits for Students
• costs: foregone earnings (+ tuition)
• benefits: additional earnings
• summary: Figures 1 and 2
• costs mean financial assistance is required
• an implication of the data: high private rates of return to HE
• low tuition charges are socially inequitable
3.- Loans: The Need for Government Intervention
• human capital investment is very uncertain for lenders and for borrowers – completion
• human capital investment is very uncertain for lenders and for borrowers – ability
• human capital investment is very uncertain for lenders and for borrowers – the future labor market
• uncertainty leads to default
• the problem for banks: no saleable collateral
• the problem for students: no access to loans
• government intervention is required
4.- The Problems with Government Guaranteed Bank Loans
• the usual solution: government guaranteed commercial bank loans.
• benefit 1: solves the lender default problem
• benefit 2: provides commercial finance simply
BUT cost 1 - defaults expensive for taxpayers
cost 2 - some hardship when repaying (no consumption smoothing)
cost 3 - some credit risk of default (no insurance)
cost 4 - collection can be administratively expensive
cost 5 - collection can be administratively expensive
5.- The Costs and Benefits of Income Contingent Loans
• describing an unusual but growing solution: income related loans
• benefit 1: avoids repayment hardships (consumption smoothing, see below)
• benefit 2: fixes the student default problem (insurance)
• benefit 3: if universal no family sharing issues
• cost 1: some students avoid payment if don‘t participate
• cost 2: collection requirements can be complex
6.- An ICL Case Study: Australia`s HECS 1989-2005
• HECS charges described: $3,000-$6,000 pa, different by course. A typical debt is $16,000.
• HECS in operation: recording the tuition debt with the Tax Office
• HECS collection parameters: Table 1
• HECS typical repayments: Figures 5 and 6
Table 1HECS Income Thresholds and Repayment Rates: 2004/05
Below $35,000 Nil
$35,001–$38,987 4
$38,988–$42,972 4.5
$42,973–$45,232 5
$45,233–$48,621 5.5
$48,622–$52,657 6
$52,658–$55,429 6.5
$55,430–$60,971 7
$60,972–$64,999 7.5
HECS repayment incomes in the range: (A$) per year
Per cent of income applied to repayment
$65,000 and above 8
$20,000.00
$25,000.00
$30,000.00
$35,000.00
$40,000.00
$45,000.00
$50,000.00
$55,000.00
$60,000.00
20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35
Age
Dol
lars
Gross Income
After HECS
Figure 5. Typical male repayments: Full time graduates
$20,000.00
$25,000.00
$30,000.00
$35,000.00
$40,000.00
$45,000.00
$50,000.00
$55,000.00
$60,000.00
20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35
Age
Dol
lars
Gross Income
After HECS
t
Figure 6. Typical female repayments: Full time graduates
0.00%
1.00%
2.00%
3.00%
4.00%
5.00%
6.00%
7.00%
22 23 24 25 26 27 28 29 30 31 32
AGE
Pe
rce
nta
ge
Figure 7 Bank loan repayments compared to HECS : Full time graduates
Illustrating the benefits of income contingent loans compared to bank loans: consumption
smoothing
• Compare bank loans of same amount with HECS
• Assume graduate is unemployed from age 24 to 27
• Assume graduate is in part-time work from 28 to 32
• Showing consumption smoothing: Figures 6 and 7
$-
$500.00
$1,000.00
$1,500.00
$2,000.00
$2,500.00
$3,000.00
$3,500.00
22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40
Age
Inco
me,
Loa
n P
aym
ents
Bank Payment HECS Payment Male HECS Payment Female
Figure 8 Bank loan repayments compared to HECS :
Unemployed and Part time graduates
0.00%
5.00%
10.00%
15.00%
20.00%
25.00%
22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39
AGE
Pe
rce
nta
ge
HECS BANK
UnemployedFull Time Full TimePart Time
Figure 9 Bank loan repayments compared to HECS as a proportion of income:
(females, same as males)
• The effect of HECS on revenue:
Figure 10
Actual and Projected HECS Revenue: 1989–2005 (A$)
0
200
400
600
800
1000
1200
1400$m Up Front and Voluntary Repayments
Compulsory Repayments
Total
• The effect of HECS on domestic student numbers: an increase of 55-70 %
• The effect of HECS on access:Figure 11
Proportion of 18 year olds Undertaking a Degree by Family Wealth
0%
10%
20%
30%
40%
50%
60%
1988 1998
% Lowest quartile Middle quartiles Top quartile
Source: Chapman and Ryan (2002).
7.- The Critical Role of Collection
Minimum Requirements in Summary:
• a reliable, preferably universal, system of unique identifiers;
• accurate record-keeping of the liabilities of students (while studying);
• a collection mechanism with a sound and, if possible, a computerised record-keeping system; and
• an efficient way of determining with accuracy, over time, the actual incomes of former students.
8.- Changes Internationally Towards ICL
. Yale (1970s) (failed)
. Sweden (mid-1980s) (blunt form)
. Australia (1989) (first to use tax office)
. New Zealand (1992)
. the US (1994, modified 2007)
. South Africa (1994)
. the UK (1997, expanded considerably in 2006)
. Thailand, 2007 (only)
. Hungary, 2003
. Canada (?), 2009
. Malaysia, 2010
. Ireland, 2010
. Under consideration in many other countries: Germany, Colombia, EU, Israel, PNG
9.- Conclusions• the economically and socially advantaged derive large benefits
from higher education
• thus, charging low or no tuition is socially inequitable
• tuition revenue can provide extra finances for higher education efficiency and growth (or assisting other areas of education)
• Intervention is needed, but there are important problems with bank loans
• ICL provide an equitable system: only pay when you are able
• thus ICL provides default insurance and consumption smoothing
• ICL can be used for income support as well as tuition
• many countries currently have adopted or are adopting ICL, but not all
BUT: the collection mechanism of ICL is critical to success and these approaches cannot be used in many countries