HECS: A Hybrid Model for Higher-Education Financing

Income contingent student loans (ICL) for higher education are based on the idea that graduates should repay tuition loans as a percentage of their income, and were first introduced in Australia in 1989. There is now a quiet revolution underway in this form of financing, a shift away from traditional approaches and towards ICL. The chapter explains why ICL are now dominating traditional approaches to higher-education financing. Interestingly, economists are also now exploring new prospects for the use of ICL as a general government financing instrument; there is great potential to apply this model across a range of social and economic policies, including for the financing of drought relief, the payment of low-level criminal fines, brain drain compensation to low-income countries and extensions of paid parental leave. ICL fit comfortably in a political economy context with a critical role of government being as risk manager.