Income Support for Higher Education Through Income Contingent Loans
18 Pages Posted: 18 Apr 2011 Last revised: 10 May 2011
Date Written: March 1, 2011
This paper argues that an income contingent loan (ICL) should be considered for tertiary student living costs as a supplement to existing income support policy in Australia. It is shown that income support remains insufficient despite recent improvements to policy, and that as little as $1,500 per annum could result in improved participation and educational outcomes for many existing and prospective students. The case for an ICL is put forward and advantages and disadvantages are discussed, including observations from proponents and critics of ICL policy. The key features for consideration in policy design are described, including eligibility criteria to mitigate adverse selection. Implicit taxpayer subsidies are calculated for a hypothetical scheme under both a loan surcharge and real loan indexation arrangements. It is argued that a surcharge would be more attractive to students, and cross-subsidisation from higher earning to lower earning graduates would reduce the costs to taxpayers.
Keywords: Income Contingent Loan, Income Support, HECS, Higher Education
JEL Classification: I22, I28, H52
Suggested Citation: Suggested Citation