The Australian Government supported tertiary enrolments in Australia with the HECS scheme in 1989. It saw no need to extend this deferred payment scheme to vocational education until 2017. By this time, and as a partial consequence, student HECS debts were becoming unsustainable, Australia faced a severe skilled labour shortage but had a surplus of lawyers and other graduates.
In 1989 the Hawke /Keating Government, as a consequence of the disastrous free fee legislation of a decade earlier, were forced to introduce a form of user pays into the Australian higher education system. The Higher Education Contribution Scheme (HECS) which they introduced was an attempt to solve the funding problem that the earlier scheme had caused at the same time as keeping their middle class voters on side with a seemingly gentle scheme which allowed students continued access without upfront payments. It was however another example of ill- conceived middle-class welfare and possibly even more harmful than the earlier scheme.
The scheme was deficient on several fronts
1.Equity
HECS represented a shift in Government funding towards the middle classes who were the main beneficiaries . Importantly no similar loan scheme was offered to vocational students with the Government implicitly arguing tertiary education (in any field) was more socially important than boosting apprenticeship training . The HECS-HELP scheme was not extended to vocational education and training (VET) students through the introduction of VET Student Loans until January 1, 2017. The ramifications of this misguided thinking can be seen in the acute skilled labour shortages , specifically in trades areas, that Australia now faces.
2.Educational Efficiency
In terms of efficient educational policy, HECS was demand driven, with no Government or institutional input into course selection . It worked best for full time student who intended to enter the workforce on graduation. Student were free to access any course without reference to national labour force needs . The resultant over supply of Lawyers, Marketers and Arts Graduates was as predictable as it was inevitable. Only since 2020 has the Government intervened in course selection and then only by the indirect means of differential course charges.
3.Fiduciary Rigor
In a fiduciary sense it was poorly structured. In essence the scheme was a “hire purchase agreement” but without the defined repayment and interest rate options that normally accompany such hire purchase schemes.
- Because the scheme was open-ended and demand driven. Students could study, as much as they liked and in so doing accumulate debt without any real constraints. The Government had no control over which courses would be chosen.
- In other words, the lender (Government) had no information when ,or if, the student would reach the earnings threshold and have the capacity begin to repay the debt
- Consequently, there was no reliable information as to when the public debt would be repaid. No responsible lender would lend under these conditions!
- As with all hire purchase agreements defaults and bad debts are inevitable . Yet, the Government did not provide estimates of the likely loss of revenue from failures in the scheme
Strangely, the Government seemed surprised as the unpaid debts associated with HECS began to mount By1995, HECS debt had accumulated to approximately $3.6 billion. and by 2010 total HECS debt had grown significantly to around $23 billion Modelling estimated that the debt would approximate $64 Billion by 2026, unless structural changes were made.
Inflated views of the earnings value of tertiary education
Apart from the structural and prudential errors associated with the scheme, it also suffered from an inflated view on behalf of the Government as to the potential earnings of students with university degrees. The system that they had created, where tertiary education had become in stages, free and then available on the “never-never” saw a large increase in graduates to 335,000 by 2020. As in any situation of increased supply, without accompanying and offsetting demand, wages fell in real terms and graduate unemployment grew. In other words, the returns to university qualifications fell and the pressure of fee repayment charges on graduates grew.
In the face of a mounting HEC debt and the decline in the real income and borrowing power of graduates, in 2025 the Government brought into its partial loan amnesty. This was further income re-distribution to the wealthier and was widely criticised by economists as inefficient and inequitable including leading private sector economist Chris Richardson who called it “dumb” (https://lnkd.in/gE-YskND)
Conclusion
Policy on Tertiary education in Australia has been distinguished by poor policy making and irresponsible funding decisions. University education is not free, but the Whitlam Government pretended it was. Their decision to abolish fees (at the substantial cost of reduced Commonwealth scholarships) , destabilised the quasi-efficient mix of full time /part time and vocational study in Australia and re-distributed income away from the less wealthy and the socio-economic disadvantaged. When this decision proved unsustainable, the Hawke Government made another poor decision by introducing a deferred payment and ill-defined scheme known as HECS whose legacy is increased student debt, graduate over supply and graduate unemployment. At the same time no similar scheme was introduced to finance vocational education. Then in 2025, the Albanese government achieved the trifecta with another poorly thought out and inequitable, partial loan amnesty, which was widely criticised by economists.
