Last week the government introduced legislation to set up another HELP income-contingent loan (ICL) to assist with education-related expenses. If the bill passes, SY-HELP will lend students up to $23,600, which will be paid to their university to support student work on business start-up ideas. SY-HELP would join HECS-HELP, FEE-HELP, OS-HELP and SA-HELP.

Higher education students on student income support are also eligible for the Student Start-up Loan, which is legislatively separate from HELP but repaid in the same way.

Higher education students who have also enrolled in vocational education may have income contingent debt from VET FEE-HELP, its replacement VET Student Loans, or Trade Support Loans. These loans also have the same repayment system as the higher education HELPs.

If the SY-HELP bill passes, a total eight education-related income contingent loan schemes will be in operation, six for higher education and two for vocational education.

Do we need an income contingent loan at all?

Before I get into the differences between loan schemes, the bigger question is whether an ICL is needed at all. I thought not for the recent inclusion of some microcredentials in FEE-HELP.

SY-HELP’s eligible group – from final year undergraduates to graduates up to three years out – is more likely to have cash flow issues than the typical microcredential student. The bill also makes them eligible for student income support. So SY-HELP passes this test.

According to the Start-up Year consultation paper there are already more than 100 hubs at Australian universities that can help with start-up ideas. Will SY-HELP complement or complicate their operations?

I am not across the detail of how existing programs work, but if they involve a ‘qualification’ this bill could regulate a space that is currently flexible. On my reading parts of it apply whether students are supported by SY-HELP or not. This could easily hinder rather than help. The public servant worldview in the legislation – prescriptive rules, a process for everything that might go wrong – is a long way from the business start-up culture. That the Department does not seem to have published the results of its consultation process, instead just putting two paragraphs of reassurance in the legislation’s explanatory memorandum, might suggest that reaction to the Start-up Loan was not 100% positive.

The amount of money involved is also so trivial as to raise questions about whether the policy can be worth the bureaucratic effort. While it could be increased in the future without amending the legislation, the current policy is 2,000 places provided across the system each year with a maximum annual full-time equivalent loan of $11,800, which equals $23.6 million in additional lending. HELP will lend about $7.3 billion this year, so SY-HELP will barely be detectable in the total.

If business start-up courses are a reasonable use of an ICL, that does not mean that a separate HELP scheme is needed. Last year microcedentials were added to FEE-HELP with a couple of pages of amending legislation. The SY-HELP bill has 31 pages of amending legislation, not counting the student income support extension. The rest of this post considers arguments for and against separate HELP schemes.

Do we need so many income contingent loan schemes? – branding

Branding is one reason for differentiating loan schemes, to highlight that it is available for some purpose the government wants to promote. OS-HELP for example was introduced in 2005 to encourage Australian students to spend time overseas as part of their studies. VET branded schemes highlighted the extension of income-contingent loans into vocational education, albeit with disastrous results in the case of VET FEE-HELP. Perhaps SY-HELP falls into this branding category.

But it is harder to see why the higher education tuition schemes need different branding. People often confuse HECS-HELP (for student contributions) and FEE-HELP (for other higher education tuition charges) anyway, or blur them both into ‘HECS’. When FEE-HELP was introduced in 2005 it consolidated unnecessary separate ICL brands for Open Universities Australia (formerly OPLDS), bridging programs for overseas professionals (formerly BORTLS) and full-fee postgraduates (formerly PELS) while adding full-fee undergraduates. Putting microcredentials in FEE-HELP avoided creating a separate loan scheme.

Do we need so many income contingent loan schemes? – hypothecation

The HELP schemes differ in the flexibility of their revenue uses.

Universities don’t have to spend HECS-HELP or FEE-HELP revenue on the students who borrowed the money or even on student-related services at all.

For OS-HELP by contrast the money has to flow through to the student and for SA-HELP (via rules on the student amenities fee) the money can only be spent on a legislated list of activities. With SA-HELP there is also some politics, with student unions trying to identify money that they believe should be under their control.

So far as I can see from the amending legislation SY-HELP will not be hypothecated.

For hypothecated HELPs there may be some administrative and for SA-HELP political clarity in a separate loan scheme. However hypothecation does not require this, and if OS-HELP and SA-HELP were merged into a broader scheme this would not change the law on how the money could be used.

Do we need so many income contingent loan schemes? – different lending caps

Another reason for separate loan schemes is to support different systems of capping lending.

All the tuition support programs – HECS-HELP, FEE-HELP, VET Student Loans, and VET FEE-HELP – share a combined HELP balance limit.

SA-HELP is not included in the overall HELP balance limit and has no restrictions on total borrowing but has an annual cap via the maximum compulsory student amenities fee.

OS-HELP, Student Start-up Loans and Trade Support Loans are not counted towards a person’s HELP balance but as with SA-HELP the amount that can be lent is limited and in addition each individual student can only access each scheme a limited number of times. This would also be the case for SY-HELP if it passes into law; it can be accessed up to twice, so up to $23,600 more HELP debt.

From the government’s perspective I can see the case for distinctions between broad categories of loans when capping lending. For example, they may not want students to choose between spending on tuition and income support from the Student Start-up Loan, or between paying for subjects upfront and an overseas study experience. They may also want to control how much they invest in any one ICL purpose.

These issues don’t really apply for SA-HELP. If an amenities fee is charged students have no choice but to pay it, and a high number of tuition fee borrowers take out SA-HELP loans despite the cost being relatively low (maximum $326 in 2023). It could just be merged into the substantive loan scheme the student is using for their course, HECS-HELP or FEE-HELP, with a small increase in the total cap if this was considered necessary.

SY-HELP is for coursework programs so, apart from the branding issues discussed above, a strong candidate for also being included in whatever substantive loan scheme the student is using, HECS-HELP or FEE-HELP.

One broader point: separate caps may avoid students making trade-offs that seem unattractive in the short term, but detract from one policy goal of caps, which is to limit total individual outstanding ICL debt. Students taking on more debt than they can handle or is likely to be repaid is a problem for both private and public finances.

Do we need so many income contingent loan schemes? – university-level lending caps

OS-HELP, and if it passes SY-HELP, differ from the other HELPs in not being rule-driven student entitlements. Instead, universities are allocated an amount of money each year and they decide which students get it. From the perspective of Commonwealth and university bureaucrats it makes lending for these purposes clear – this year we allocate/can distribute $X for OS-HELP/SY-HELP.

But sub-allocations within broader programs are not that hard to manage. Caps on student programs within the Commonwealth Grant Scheme have always existed in some form without students needing to know, or be confused by, the detail.

Do we need so many income contingent loan schemes? – loan fees, up-front discounts

Different loan schemes have had varying incentives/penalties to influence borrowing behaviour and manage costs.

HECS-HELP has had varying and on-again/off-again (currently off) ‘discounts’ on student contributions for paying upfront. At least in the pre-2005 period when the government set and received the HECS charge this was clever framing, since in practical terms this was as much a fee for those who borrowed as a discount for those who did not.

FEE-HELP has loan fees for undergraduates enrolled outside the private universities, currently at 20 per cent of the value of the loan. For no apparent reason postgraduate FEE-HELP borrowers have always been exempt from the loan fee. For VET Student Loans, a 20 per cent surcharge applies to full-fee students but not students in state-subsidised courses (although in these cases the states partly compensate the Commonwealth for loan expenses).

SA-HELP and OS-HELP have never had loan fees, and there is no such fee included in the SY-HELP bill.

The fact that FEE-HELP has different loan fees depending on student category shows that different loan schemes are not needed for this purpose, although if they were applied consistently the branding of the loan scheme would be one way of trying to help students understand when they do and when they do not have to pay these fees. Unfortunately, loan fees apply in an arbitrary and confusing way.

Conclusion

Even if SY-HELP had a stronger rationale than I think it does the problem with it, along with other ad hoc micro-programs, is that too little attention is paid to their cumulative consequences. The fairly straightforward HECS ICL of 1989 has evolved into a multiple ICL ecosystem that is complex and time-consuming for both Commonwealth and higher education provider bureaucrats to administer, and which few students could possibly understand.

As this post explains there are reasons, some better than others, for distinctions between loan arrangements. But the elimination of unnecessary loan categories and consolidation of HELP schemes could simplify ICLs for both bureaucrats and students.