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1301.0 - Year Book Australia, 2005  
Previous ISSUE Released at 11:30 AM (CANBERRA TIME) 21/01/2005   
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Paying for university education

This article briefly examines the three main sources of funding for higher education - Australian Government funding; student fees and charges; and the Higher Education Contribution Scheme (HECS). While the proportion of total revenue raised through HECS is relatively small, HECS payments are a significant component of students' university costs, with many students carrying a HECS debt for several years after leaving university. This article also focuses on characteristics of university students based on their HECS liability status, and the level of accumulated HECS debt.

In 2002 the total operating revenue for Australian higher education institutions was $11.6b, an increase from $8.2b in 1997 (table 10.37). In 2002 the three largest sources of higher education funding were Australian Government contributions ($4.7b), fees and charges ($2.5b), and HECS ($1.8b). Funding provided by the Australian Government to higher education increased from $4.4b in 1997 to $4.7b in 2002. As a proportion of overall funding, this represented a decrease from 54% in 1997 to 40% in 2002.


10.37 SOURCES OF HIGHER EDUCATION FUNDING

Units
1997
2002

Australian Government%
53.8
40.1
State and territory governments%
1.1
4.0
HECS(a)%
14.7
15.8
Fees and charges%
14.9
21.2
Fee paying domestic students%
1.5
2.8
Fee paying overseas students%
7.6
12.5
Other fees and charges%
5.8
5.9
Other income(b)%
15.4
18.9
Total%
100.0
100.0
Total revenue$b
8.2
11.6

(a) Includes student contributions and Australian Government payments.
(b) Includes Postgraduate Education Loan Scheme, introduced in 2002; superannuation; investment income; royalties, trademarks and licenses; and consultancy and contract research.

Source: Department of Education, Science and Training, 'Selected Higher Education Finance Statistics, 1997'; 'Finance 2002: Selected Higher Education Statistics'.


Graph 10.38 shows the changing relative contributions of each of the three main sources of funding for higher education during the period 1994 to 2002.

Graph 10.38: MAIN SOURCES SHARE OF HIGHER EDUCATION FUNDING



Higher Education Contribution Scheme (HECS)

HECS was introduced in 1989. Under HECS, students choose to pay their contribution up-front or defer their payment, with the Australian Government providing a 25% discount to eligible students who pay up-front. Students who choose to defer their payment take out a loan with the government and agree to repay that loan when their income reaches the minimum threshold for compulsory repayment. (footnote 1)

Higher education students are either HECS-liable and required to contribute towards HECS through up-front or deferred payments, or HECS-exempt and not required to contribute to HECS. In general, undergraduate students are HECS-liable while postgraduate students are HECS-exempt and are therefore required to pay up-front fees unless they have a scholarship.

A feature of HECS is that payment arrangements are based on the individual’s capacity to pay. This arrangement means that students are not prevented from participating in higher education by an inability to pay up-front. Students are not required to make payments until their personal income in a financial year exceeds the minimum threshold, which was $24,365 for 2002-03. The level of payment required above this threshold depends on the person’s income. (footnote 2)

The contribution of student fees and charges (other than HECS) to higher education funding more than doubled between 1997 and 2002, from $1.2b to $2.5b. This represented an increase in the proportion of overall funding from 15% in 1997 to 21% in 2002. This increase coincided with a large increase in the total number of overseas students (from 63,000 in 1997 to 185,000 in 2002) as well as the introduction of full-fee-paying places for domestic undergraduate students in 1998.

In 2002, $1.8b was raised through HECS, representing 16% of all higher education funding. This compares with 15% raised through HECS in 1997.

Students and HECS

Since the introduction of HECS the majority of higher education students have entered university with a commitment to make a substantial contribution to the cost of their education via HECS. In 1989 around 372,000 students were HECS-liable, increasing to 420,000 in 2002. There was a decrease over this period in the proportion of students who were HECS-liable, from 86% to 67%. The decrease in the proportion of HECS-liable students reflects increasing numbers of overseas students and domestic fee-paying students since the late-1990s - both of these groups are largely HECS-exempt (table 10.39).


10.39 HECS LIABILITY STATUS OF HIGHER EDUCATION STUDENTS

1992
1997
2002
%
%
%

HECS-liable
81.7
78.7
67.1
HECS-exempt
18.3
21.3
32.9
Overseas fee-paying
4.8
10.9
20.0
Domestic fee-paying
2.2
3.2
4.8
PELS-liability deferred(a)
. .
. .
1.8
Other HECS-exempt(b)
11.3
7.2
6.4
Total
100.0
100.0
100.0

(a) Postgraduate's Education Loan Scheme (PELS) introduced in 2002.
(b) Includes overseas foreign-aid sponsored students; Australian Postgraduate Awards; enabling courses; and non-award courses.

Source: Department of Education, Science and Training, 'Selected Higher Education Student Statistics', 1992 and 1997; 'Students 2002: Selected Higher Education Statistics'.


Most undergraduate students use the HECS system, either by paying up-front or deferring their payments. In 2002, 81% of students undertaking bachelor degrees and 79% of those undertaking advanced diplomas or diplomas were HECS-liable (table 10.40).


10.40 STUDENTS' LIABILITY STATUS, By level of education - 2002

HECS-liable
HECS-exempt
%
%

Postgraduate degree
8.0
92.0
Graduate diploma and Graduate certificate
27.6
72.4
Bachelor degree
81.3
18.7
Advanced diploma and Diploma
79.0
21.0
Other
10.8
89.2
Total
67.1
32.9

Source: Department of Education, Science and Training, 'Students 2002: Selected Higher Education Statistics'.


Since the introduction of HECS, the amount charged and the rate of repayment through the tax system have varied. In 1989, all students were charged a flat rate irrespective of their course of study. In 1997, a three-tiered system of charges was introduced to reflect the differing cost structure of various courses and the differing potential earning capacity of graduates. (footnote 2)

HECS-liable students have the option of paying their HECS fees up-front to obtain a discount (25% in 2004) or delaying payments until they have attained a certain level of income. At this time, a proportion of an individual's salary is paid towards their HECS debt through the income tax system. Of the 420,000 HECS-liable students in 2002, 79% deferred their payment while 21% paid up-front with a discount. Each year, the Australian Government contributes the difference between repayments received and the total HECS payments required to be made to the sector. In 2002, 17% of funding provided by HECS came from students' HECS contributions. The remaining 83% was paid by the Government through loans to students deferring their payments, ultimately paid back through the tax system.

From the introduction of the scheme in 1989, through to June 2003, over 1.7 million students have taken out HECS loans totalling around $13b. Of these, more than 600,000 have repaid their loans in full. (footnote 3) During this period, the accumulated HECS debt has increased steadily to more than $9b in 2003, and is estimated to reach $12b by 2006 (graph 10.41).

Graph 10.41: ACCUMULATED HECS DEBT(a)



In 2003 the average amount owing on individual HECS loans was $8,500 overall. However, there was some variation across the states and territories with the average HECS debt ranging from $6,900 in the Northern Territory to $9,000 in the Australian Capital Territory. (footnote 3) Of the 1.2 million people with a HECS loan in 2003, around two-thirds owed $10,000 or less, while 6% owed more than $20,000. (footnote 3)

Over the decade to 2002 the number of HECS-exempt students almost doubled from 104,000 in 1992 to 206,000 in 2002. The increase in the number of HECS-exempt students over the decade to 2002 may be largely due to the increase in the number of overseas fee-paying students (5% of all students in 1992 compared with 20% in 2002). The majority of overseas students are full-fee-paying or are recipients of aid scholarships. In 2002 the majority (61%) of HECS-exempt students were overseas fee-paying students, more than twice the proportion of overseas fee-paying students in the HECS-exempt category in 1992 (26%).

As well as the increase in the number of overseas students over the decade to 2002, there was also an increase in the number of domestic fee-paying students. In 1992 only 2% of all students were domestic fee-paying students. This increased to 5% (or 30,000 students) in 2002. Full-fee-paying places for undergraduate courses were introduced in 1998. In 2002, 22% of domestic fee-paying students were undergraduates, increasing from 4% in 1998.

Endnotes

1 Department of Education, Science and Training 2002, DEST Annual Report 2001-2002, DEST, Canberra. < Back

2 Department of Education, Science and Training 2003, Higher Education Report for the 2003 to 2005 Triennium, DEST, Canberra. < Back

3 Unpublished data provided by the Australian Taxation Office. <Back

References

Australian Government Department of Education, Science and Training
  • Finance 1999-2002: Selected Higher Education Statistics
  • Selected Higher Education Finance Statistics, 1994-1998
  • Students 2002: Selected Higher Education Statistics

Australian Taxation Office

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