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Income contingent loans in higher education financing
Around nine countries currently use a national income contingent loan (ICL) scheme for higher education tuition using the income tax system. Increased international interest in ICL validates an examination of its costs and benefits relative to the traditional financing system, government-guaranteed bank loans (GGBLs). Bank-type loans exhibit poor economic characteristics: namely, repayment hardships for the disadvantaged, and default. This damages credit reputations and can be associated with high taxpayer subsidies. ICLs avoid these problems, but effective collection of debt requires a sophisticated mechanism.
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2020 Summit: 'An Australian on Mars by 2020'
In: Agenda: a journal of policy analysis & reform, Band 15, Heft 2
ISSN: 1447-4735
Punitive Damages as Aggravated Damages: The Case of Contract
In: Canadian Business Law Journal, Band 16, S. 269-280
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Law Games: Defeasible Rules and Revisable Rationality
In: Law and Philosophy, Band 17
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Income contingent loans for higher education: international reform
It is well known that higher education financing involves uncertainty and risk with respect to students' future economic fortunes, and an unwillingness of banks to provide loans because of the absence of collateral. It follows that without government intervention there will be both socially sub-optimal and regressive outcomes with respect to the provision of higher education. The historically most common response to this market failure — a government guarantee to repay student loans to banks in the event of default — is associated with significant problems. Income contingent loans offer a possible solution. Since the late 1980s ICLs have been adopted in, or recommended for, a significant and growing number of countries, and it is this important international policy reform that has motivated the Chapter. An ICL provides students with finance for tuition and/or income support, its critical and defining characteristic being that the collection of the debt depends on the borrowers' future capacity to pay. ICL have two major insurance advantages for borrowers over more typical arrangements: default protection and consumption smoothing. With reference to countries with both successful and unsuccessful ICL, the paper illustrates that the operational and design features of such schemes are of fundamental importance with respect to their potential efficacy. It also seems to be the case that in many institutional and political environments there is not yet the administrative sophistication to make ICLs viable, although for reasons documented this is unlikely to be the case for the vast majority of OECD countries. For one country, Australia, there is now a significant amount of research into the consequences of an ICL, and the evidence is explored in some detail. The investigation into the Australian experience helps in the development of a research agenda.
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Opinion: a critical appraisal of the new higher education charges for students
In: http://hdl.handle.net/1885/42104
The legislation concerning the financing of Australian higher education passed the Senate in the last Parliamentary sitting week of 2003. The changes introduced will begin in 2005, and after this time the system will start to move away from its current settings. It is argued in what follows that these reforms have the strong potential to change radically the policy landscape with respect to student charges. A premise of the paper is that the transformation of Australian higher education funding after 2005 is likely to be more profound than was the case with all other financing changes over the last 30 years or so. As background, the discussion offers a brief historic overview of university funding reforms: the abolition of fees by Labor in 1973; the introduction of the Higher Education Administration Charge in 1987; the major extension of user pays through the Higher Education Contribution Scheme which began in 1989; and the considerable changes to HECS implemented in 1997. While some reforms are considered to have been fundamental with respect to the incidence and nature of higher education charges for students, it is argued that the new policy arrangements are very likely to have a much greater impact. To this end, the analysis includes an explanation of the critical role played by the indexation of government grants to Australian universities. While this might seem like a strange place to start given the lack of attention to the issue in public debate, it should become clear that the indexation rules in place since 1995 are a key to understanding the likely effects of the 2005 student financing policy transformations. This analysis is followed with a description and evaluation of the two major 2005 policy changes to student financing, known as HECS-HELP and FEE-HELP. It is argued that the essence of HECS-HELP is sound economic and social reform, particularly given that there is to be a substantial increase in the first income threshold of repayment of students debt. HECS-HELP has the potential to improve the functioning of Australian universities without harming access for the less well-off. FEE-HELP, on the other hand, can be seen to be a poor reform. The policy offers income related loans for all domestic students charged full fees, and this is certainly an improvement over current arrangements allowing full fees to be charged without an income related loan system. Even so, it is argued that Australian universities should not be allowed this level of price discretion, given long histories of taxpayer subsidy and the considerable advantages for some institutions of their (rent-free) prime locations. By continuing to restrict the number of places that can be offered to domestic students, the price flexibility allowed through FEE-HELP will thus provide very substantial economic advantages to well placed institutions with no important benefits with respect to competition. There are other problems with FEE-HELP: inequities associated with similarly qualified students incurring different charges, and the proposed capping of loans, which has the real prospect of damaging the access of the poor. Overall, there are compelling reasons for the abolition of FEE-HELP and replacing it with greater flexibility with respect to universities deciding the number of places to be offered in the context of a continued capping of charges. This can be achieved without adding to government outlays. In the context of both the indexation arrangements and the suggested changes to student charges, it is possible to offer some predictions of Australian university reactions with respect to their new capacity to influence student charges. For an economist to make forecasts of this nature might be considered courageous indeed, it is sometimes suggested that economists have trouble predicting even the past but all the current indicators strongly suggest what the future will look like in this area. In short, there will be rapid increases in charges through HECS-HELP, and eventually a significant increase in the take-up of FEE-HELP: the overall increase in the proportion of costs financed by students will be very large. A preferred reform model for Australian higher education financing is then offered. The approach suggested should be seen to be an implicit endorsement of some aspects of the governments new arrangements, specifically those associated with HECS-HELP. In important other respects the promotion of the alternative outlined is consistent with two significant criticisms of current directions. One, the essence of FEE-HELP is misplaced; and two, arguments are offered for extensions of HECS in ways that are ultimately costless to the Budget but which could improve the economic circumstances of a large number of prospective tertiary students.
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A submission on financing issues to the Department of Education Science and Training Inquiry into Higher Education
At the end of 2002 or thereabouts the Commonwealth Government will be announcing changes to the financing of Australian higher education. The paper addresses the major issues, beginning with a brief history of university funding arrangements. This is followed by an conceptual analysis of financing models, on which it is demonstrated that the best way to manage student charges is with an income contingent loan, such as HECS. The paper explores some aspects of current university conditions. It is shown that over the past twenty years or so there has been a significant decrease in the relative salary levels of academics, and that over the last few years staff/student ratios have fallen significantly. Some part of the deterioration in conditions can be traced to the implementation of an inadequate indexation arrangement for government grants, instituted in 1995. That is, with respect to allowing the maintenance of earnings matching average Australian wage increases, public sector outlays have been falling. These falls are above and beyond what has occurred with the justifiable switch in financial contributions from taxpayers to students. Those arguing for some restoration of government support have a point.
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Australian higher education financing: issues for reform
The paper documents the recent history of higher education financing in Australia. It is argued that there have been radical changes to financing arrangements over the last 12 years or so, which have taken the form of the imposition and increase in student charges. Contributions from students are justified, and the collection mechanism used in Australia is argued to be the best arrangement: income contingency. A major part of the paper takes up this theme through the comparison of the economic and social consequences of different financing arrangements involving student charges. It is argued that bank loans and/or scholarship systems with up-front fees are necessarily inferior to arrangements that take into account a former student's future capacity to pay. The HECS – or similar income contingent policies – are argued to be the only way to go. It is also argued that the Australian higher education financing system is in need of reform. The issues documented include: relative academic salaries have fallen significantly over the last two decades; enterprise bargaining is a poor collective bargaining instrument for public sector universities; and, there is a need for some institutional price flexibility. Even so, it is pointed out that unfettered price flexibility for Australian universities is undesirable, for two reasons. The first is that there have been many years of public subsidy for the well-established institutions, and the second is that these same institutions have considerable real estate benefits from their propitious geographic locations. Both issues necessarily mean that allowing full charge discretion will deliver considerable and unfair rents to the most advantaged institutions and their contemporary staff. However, a case for limited price flexibility is offered. The potential benefits are the encouragement of increased competition and to allow additional revenue. It is stressed that it is critical that policy reform along these lines should necessarily involve income contingent repayment, and it is explained how this might work. The final part of the paper analyses the Government's recently announced plan to allow Postgraduate students the option of paying their charge with an income contingent loan. That is, HECS is to be extended to Postgraduate study. It is argued that, in principle, this is an excellent reform of higher education financing arrangements. The scheme is not, however, straightforward. Because HECS has a zero real rate of interest, the new scheme means that there will be a significant level of subsidy for both students and universities, and the extent of the subsidy is illustrated for a range of different student circumstances. An implication of these subsidies is that, eventually, the Government will very likely impose changes. It is argued that the worst possible reform would be to cap levels of student borrowing through HECS. A much better solution would be to offer a discount for up-front payment of postgraduate charges.
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Australian higher education financing: issues for reform
The paper documents the recent history of higher education financing in Australia. It is argued that there have been radical changes to financing arrangements over the last 12 years or so, which have taken the form of the imposition and increase in student charges. Contributions from students are justified, and the collection mechanism used in Australia is argued to be the best arrangement: income contingency. A major part of the paper takes up this theme through the comparison of the economic and social consequences of different financing arrangements involving student charges. It is argued that bank loans and/or scholarship systems with up-front fees are necessarily inferior to arrangements that take into account a former student's future capacity to pay. The HECS – or similar income contingent policies – are argued to be the only way to go. It is also argued that the Australian higher education financing system is in need of reform. The issues documented include: relative academic salaries have fallen significantly over the last two decades; enterprise bargaining is a poor collective bargaining instrument for public sector universities; and, there is a need for some institutional price flexibility. Even so, it is pointed out that unfettered price flexibility for Australian universities is undesirable, for two reasons. The first is that there have been many years of public subsidy for the well-established institutions, and the second is that these same institutions have considerable real estate benefits from their propitious geographic locations. Both issues necessarily mean that allowing full charge discretion will deliver considerable and unfair rents to the most advantaged institutions and their contemporary staff. However, a case for limited price flexibility is offered. The potential benefits are the encouragement of increased competition and to allow additional revenue. It is stressed that it is critical that policy reform along these lines should necessarily involve income contingent repayment, and it is explained how this might work. The final part of the paper analyses the Government's recently announced plan to allow Postgraduate students the option of paying their charge with an income contingent loan. That is, HECS is to be extended to Postgraduate study. It is argued that, in principle, this is an excellent reform of higher education financing arrangements. The scheme is not, however, straightforward. Because HECS has a zero real rate of interest, the new scheme means that there will be a significant level of subsidy for both students and universities, and the extent of the subsidy is illustrated for a range of different student circumstances. An implication of these subsidies is that, eventually, the Government will very likely impose changes. It is argued that the worst possible reform would be to cap levels of student borrowing through HECS. A much better solution would be to offer a discount for up-front payment of postgraduate charges.
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Rational Aggregation
In: Politics, philosophy & economics: ppe, Band 1, Heft 3, S. 337-354
ISSN: 1741-3060
In two recent papers, Christian List and Philip Pettit have argued that there is a problem in the aggregation of reasoned judgements that is akin to the aggregation of the preference problem in social choice theory.1 Indeed, List and Pettit prove a new general impossibility theorem for the aggregation of judgements, and provide a propositional interpretation of the social choice problem that suggests it is a special case of their impossibility result.2 Specifically, they show that no judgement aggregation function for a group is possible if the group seeks to satisfy certain `minimal conditions' designed to ensure that the function is both responsive to the individually rational views of its members and collectively rational in the set of judgements it holds. In this article, I resist the List and Pettit claim that there is the same propensity for collective irrationality or incoherence in the aggregation of reasoned judgements as there is in the aggregation of preference. I argue that reason, because it has a logical structure that is lacking in mere preference, has the effect of giving priority to some aggregations over others, a priority that is not permitted by one of the conditions imposed by List and Pettit. This avoids the incoherence that would otherwise exist if these different aggregations, not consistent with one another, were to compete at the same level of priority. The priority of some aggregations is particularly apparent, I shall argue, if one views the aggregation of judgements through the lens of common law decision-making.
Rational Aggregation
In: Politics, philosophy & economics: ppe, Band 1, Heft 3, S. 337-354
ISSN: 1470-594X
In two recent papers, Christian List & Philip Pettit have argued that there is a problem in the aggregation of reasoned judgements that is akin to the aggregation of the preference problem in social choice theory. Indeed, List & Pettit prove a new general impossibility theorem for the aggregation of judgements, & provide a propositional interpretation of the social choice problem that suggests it is a special case of their impossibility result. Specifically, they show that no judgement aggregation function for a group is possible if the group seeks to satisfy certain 'minimal conditions' designed to ensure that the function is both responsive to the individually rational views of its members & collectively rational in the set of judgements it holds. In this article, I resist the List & Pettit claim that there is the same propensity for collective irrationality or incoherence in the aggregation of reasoned judgements as there is in the aggregation of preference. I argue that reason, because it has a logical structure that is lacking in mere preference, has the effect of giving priority to some aggregations over others, a priority that is not permitted by one of the conditions imposed by List & Pettit. This avoids the incoherence that would otherwise exist if these different aggregations, not consistent with one another, were to compete at the same level of priority. The priority of some aggregations is particularly apparent, I shall argue, if one views the aggregation of judgements through the lens of common law decision-making. 2 Tables. [Copyright 2002 Sage Publications, Ltd.]
Australian Higher Education Financing: Issues for Reform
In: The Australian economic review, Band 34, Heft 2, S. 195-204
ISSN: 1467-8462
Between Markets and Politics: A Social Choice Theoretic Appreciation of the Charitable Sector
In: George Mason Law Review, Band 6, S. 821
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Comment on 'Towards Full Employment'
In: The Australian economic review, Band 30, Heft 4, S. 418-420
ISSN: 1467-8462
The Dawkins and Freebairn paper illustrates the importance of the linkages between unemployment and social security policy, but is not entirely convincing in its explanation of unemployment, the wage‐employment elasticity, and the net benefits of a negative income tax.