Overview: This report to the Mitchell Institute presents the outcomes of modelling the potential costs of an income contingent loan (ICL) that would form a core element of a tertiary education entitlement, as proposed in the February 2015 Mitchell Institute paper Financing tertiary education in Australia – the reform imperative and rethinking student entitlements by Mitchell Professorial Fellow Peter Noonan and Mitchell Policy Analyst Sarah Pilcher.
This report, Feasibility and design of a tertiary education entitlement in Australia: Modelling and costing a universal income contingent loan, models the costs of a single income contingent loans scheme for higher education and vocational education and training (VET) students. It seeks to quantify the largely hidden subsidies involved in income contingent loans through unpaid debt and the difference between the rate at which debt is indexed and the costs to government of borrowing to finance student debt.
Feasibility and design of a tertiary education entitlement in Australia: Modelling and costing a universal income contingent loan has been prepared by Dr Timothy Higgins and Professor Bruce Chapman, two of Australia’s leading experts on the design of income contingent loans.
Feasibility and design of a tertiary education entitlement in Australia presents the outcomes of various financial modelling of the potential costs of applying an income contingent loan scheme to include all tertiary education students in Australia. The modelling maps students’ projected incomes by qualification level, finding significant variation in lifetime incomes across VET and higher education qualifications.
At present, there are a range of different income contingent loan schemes operating in Australia’s higher education and VET sectors. Under such schemes, students are not required to pay the upfront cost of their course. Instead, they are able to take out a loan with the government and repay the loan through the taxation system once they enter the workforce and their incomes reach a certain threshold.
But these loans are not available to all students. In the VET system, those studying for Certificate III and most Certificate IV VET courses, for example, early childhood education, aged care, and hospitality, do not have access to an income contingent loan. These students must pay the cost of their course upfront – a potential barrier as fees for many of these courses are increasing.
The Mitchell Institute will draw on the Higgins and Chapman report to finalise its proposal for an integrated tertiary education funding system in Australia.