Currently, Higher Education Contribution Scheme (HECS) or Higher Education Loan Program (HELP) is indexed to Consumer Price Index (CPI) and no rate of interest is charged on the loan. The measures in the Budget 2014-15 charge an interest rate rather than indexation which is a concern to many university students from an Islamic background.
This apprehension is compounded by the deregulation of fees proposed in the Budget 2014-15. Some estimates suggest that annual fees of $30,000 and beyond will become the norm for students in Australia. Industry experts believe that certain university degrees could cost $100,000 and in some cases up to $200,000 as tertiary institutions are allowed to set their own tuition fees from 1 January 2016. Like in the US, Australian students may graduate with a debt like a mortgage.
HECS/HELP is a loan facility for Australian tertiary students to finance fees for their education. The eligibility for this facility includes studying in a Commonwealth supported place; being an Australian citizen or permanent humanitarian visa holder; being enrolled with a provider by the census date as well as satisfying the residency requirements which is to be in Australia during the course of the study and undertaking at least one unit of study in a semester.
The scheme provides a discount facility if fees are paid up- front to the institutions of higher learning. The eligible students are entitled to receive a 10% discount on any upfront payment of $500 or more. Students have the option to access 100% fees from HECS/HELP and not having to make any upfront payment for their education. Those who use the scheme loan will be required to pay their debts as compulsory repayments through the tax system when they earn above the minimum threshold.
Instead of charging a rate of interest, the accumulated HECS/HELP debt is subject to indexation by a CPI. The indexation is applied on 1 June each year using March quarter CPI over the accumulated debts in the last 11 months to maintain its real value by adjusting it in line with changes in the cost of living. Hence, no rate of interest is currently charged on HECS/HELP debts.
The Budget 2014-15 proposes to charge a rate of interest equivalent to the Treasury 10 year bond rate which hovers around 6%. From 1 June 2016, this arrangement will apply to all HECS/HELP debts including those incurred by former students, continuing students and new students. The rate of interest will apply while the student is still studying and will continue to be applied each year until the student has repaid the debt in full. If a student is unable to work for any reason or unemployed for a period, the interest will continue to be charged and the debt will continue to grow.
Under the proposed budget measures, the Government will allocate 20% of additional revenue from interest charges to a new Commonwealth Scholarship program to support cost of living, fee exemptions and tutorial assistance. There will be no option for upfront fee payment to receive 10% discount. In addition to undergraduate and postgraduate degrees, the Commonwealth subsidies will be available to students undertaking a diploma, advance diploma or associated degree course to acquire skills for employment and regional industries.
The existing indexed loan facility is conducive to Muslim faith and life style as no interest based loan transaction is involved to pursue academic degrees. Many Muslims are reluctant to achieve skills and qualifications on interest and use them to earn a livelihood for the rest of their lives. Although consultations are in progress to reduce the rate of interest, the current CPI indexation method of financing is working, highly affordable to get a good education, safeguarding students from large mortgage like debts and hence, this should be retained.