Australian student loan scheme a match for Ireland - economist

Getting students to pay for their college fees through contributions based on future earnings is more equitable and less open to abuse than other means of funding higher education, Irish policy makers have been told.

Australian economist Prof Bruce Chapman, who in 1988 helped to design his country's income contingent loan (ICL) scheme for third-level education, dismissed as erroneous any comparisons to "indentured servitude", pointing out that "these arrangements are only ever voluntary".

He said: “It is important to compare these sorts of arrangements with the alternatives, such as normal income contingent or government guaranteed bank loans.

“I think ICLs come out on top, a problem with bank loans being that they are risky for the graduate who in a minority of cases may end in poor future financial circumstances.”

Prof Chapman is speaking at a conference on higher education funding at Maynooth University, which features other experts from the US and the UK.

The event is designed to inform the deliberations of the Government’s working group on third-level funding which is due to report before the end of the year.

The group was set up by former minister for education Ruairí Quinn at a time when the Higher Education Authority was close to making its own recommendation for a funding model akin to the Australian system.

At least eight countries have adopted versions of the ICL scheme, which requires students to pay some of the cost of their education up front and the remainder through a government loan.

This loan is repaid through the tax system, depending on the participant’s income.

"In Australia the proportion of income that defines repayment lies between zero and 8 per cent, and I think this is about right," Prof Chapman told The Irish Times.

“The debt is cleared for those who repay in full after about 9-11 years on average, but some repay in as short a period as four years, and about 15 per cent never repay in full because their lifetime incomes are insufficient.

"The system could be used to provide income support for disadvantaged students as well, and this is what happens in both England and New Zealand. "

On the question of access, he said: “There have been three potentially important times [in Australia] when some effect on socio-economic mix would have been expected: the original introduction of the system in 1989 when the first tuition charges were imposed instead of universities being ‘free’; a major set of changes in 1997 which resulted in an effective 70 per cent increase in the charge; and an increase in the charge of 25 per cent in 2004. In all cases, there were basically no effects on the socio-economic mix of the student body.”

In the US, private banks are increasingly muscling their way into the student loans market but Prof Chapman said this model of funding was unlikely to work well.

“The government has the clear legal jurisdiction to know what a person’s income is, and this is not likely to be the case for the private sector.”

Moreover, “it is extremely efficient to build an income contingent loan system on the back of an income tax collection mechanism, because this involves comprehensive coverage of the population.”