HECS-HELP Prices and Distributional Equity: Price setting Based on Expected Future Income

Abstract

In their final report, the Australian Universities Accord (2024) recommended redesign of HECS-HELP price bands based on future earnings potential by field of study. Setting prices in this way promotes equity as higher charges are recommended for those who are likely to earn high incomes (and, hence, have greater capacity to repay) and vice versa. In this paper we put forward a transparent methodology to select new HECS-HELP price bands based on graduate incomes. Using the 2021 Census data and Commonwealth higher education data we provide two examples of how such price bands could be set while ensuring no additional government funding requirements for individual fields of education and in aggregate. We also show that setting prices in line with expected income would reduce the variability (by field of education) and total amount of government HECS-HELP subsidies.

Keywords: HECS-HELP prices, Australian Universities Accord, Contingent debt, HECS-HELP subsidy, Expected future incomes