Select Committee on Education and Skills Appendices to the Minutes of Evidence

Annex A


  1.  This essence of this scheme remains unchanged since its introduction in 1989.

  2.  Students are expected to make a contribution towards the cost of university education. Either the student makes an up front payment with a 25 per cent discount. Or the Government pays the contribution through the HECS Reserve—a special account established for this purpose. The student then repays the contribution after completion of the course subject to reaching a specified income threshold. This is referred to as an income contingent loan.

  3.  The repayments go into the HECS Reserve. Initially, public funds underwrote most of the students' HECS loans but the largest source now is the growing level of repayments.

  4.  Although the HECS Reserve is hypothecated for use in higher education, the level of university funding is determined by the Government so as to take account of student contributions. Hence, universities do not receive more income because students pay HECS. In practice, university operating grants have increased somewhat, although funding per student has fallen.

  5.  The scheme began with a flat rate annual contribution of some £1,000. In 1997, three bands were introduced with the average contribution doubled. The subjects in the bands were selected partly according to cost and partly according to demand. For example, law was brigaded with medicine and dentistry in the highest band. A further change allowed universities to recruit additional students at full cost (and without access to income contingent loans).

  6.  As in the UK, there is no real rate of interest on the loans. The starting point for repayments has been reduced over time to near the UK level of about £10,000 per annum. But in Australia, the initial rate of repayment is 3 per cent rising to 6 per cent above about £20,000 per annum. This compares with a flat rate of 9 per cent above the starting point in the UK.


  7.  The scheme is essentially an income contingent loan scheme for the payment of fees, accompanied by a discount for up front payments. If introduced in the UK, there would be an initial cost which on a resource accounting basis would cover mainly the interest subsidy—and would amount to about 35 per cent of the cost in cash. The discount for up-front payments can be shown to compensate for the lack of interest subsidies. About 25 per cent of students take advantage of the discount. Nevertheless, such a discount for the better off might not be seen as attractive in the UK.

  8.  A major achievement of the scheme is that it has yielded substantial private contributions to university funding without affecting participation significantly.

  9.  Although the scheme offers no funding benefits for universities, it is relatively simple to administer centrally and avoids the need for universities to collect fees (except for the up-front payments). The Government sets the details of the arrangements and the HECS scheme offers no scope for universities to set their own fee levels. The separate full-cost fee regime offers some flexibility for universities but is burdensome. There is some evidence that it has encouraged a lowering of entry standards.

  10.  Arguably the present fee regime in the UK offers more potential flexibility for universities. Any problems over students paying the fee up-front with a parental contribution could be met by a selective loan scheme.

Universities UK

February 2002

previous page contents next page

House of Commons home page Parliament home page House of Lords home page search page enquiries index

© Parliamentary copyright 2002
Prepared 11 July 2002