Would a HECS remission incentive be effective?

As reported in this morning’s papers, Labor’s early childhood policy includes 50% HECS remissions for:

10,000 early childhood graduates working in areas of specific need, such as rural and regional areas, indigenous communities, and areas of socio-economic disadvantage.

This is a considerable improvement on previous Labor suggestions that HECS be cut across the board to attract students to particular disciplines. That policy is doomed to failure because students’ course preferences are driven by their interests, and not by money. The share of applications received by each discipline has generally been quite stable over time, despite the introduction of differential HECS in 1997 and widely varying salaries on completion. Also, people tend to discount the value of financial transactions in the future. An 18 year old isn’t going to be strongly influenced by a few thousand dollars they will have to repay when they are 30.

Though the current Labor policy does not provide large financial incentives – on their own figures only about $20 a week to begin with – it has the benefit of being received immediately on the desired behaviour occurring and does not require the student to alter their fundamental interests or career plans; just where they put their skills to use.

Indeed, the way it is framed may mean that is has a greater incentive effect than simply paying people working in these locations an extra $20 a week. A 50% remission sounds like more than (for example, I have not done the actual sums) a 3% wage increase. And loss aversion psychology may mean that people perceive avoiding a loss (debt repayment) as more valuable than the equivalent gain (a pay increase).

The main criticism of HECS remission schemes is that the incentives are effectively restricted to the least experienced workers, when dealing with the toughest cases would preferably be dealt with by workers who had been in the industry for a longer period of time. But given that the Commonwealth would be reluctant to get directly involved in paying early childhood staff, and this scheme may have incentive effects beyond its actual monetary value, as higher ed interventions go this seems to have more promise than most.

There, I have said something positive about an ALP education policy:)

6 Responses to “Would a HECS remission incentive be effective?

  • 1
    entropy
    January 30th, 2007 22:33

    I wonder if the swat womble has thought of the secondary benefits of getting more governesses out into the back blocks for the squatter’s sons to romance?

  • 2
    derrida derider
    January 31st, 2007 08:45

    students

  • 3
    Andrew Norton
    January 31st, 2007 09:09

    DD – I don’t think that’s the right conclusion. Price signals could affect course choice between the interests students hold (they can hold more than one set of interests, hence double degrees, and there are varying course possibilities within interest ranges, eg someone interested in science could be interested in a straight science course, a medical course, or a veterninary science course). But you are not going to convince someone interested in the performing arts to do accounting just because it is cheap.

    And price signals affect choices between universities (and impliedly, the level of investment someone wants to make; you could sensibly invest far more if you think there is going to be a strong financial return).

  • 4
    Rajat Sood
    January 31st, 2007 10:04

    Andrew, I looked at the Exec Summ for the paper on students’ course prefences you referenced and had a quick look at the conclusions of the full paper. It was a pretty limited study (pre-differential HECS) and didn’t explicitly test the proposition that fees or financial returns don’t matter. If anything, it made some observations on whether course status was an important driver – for example, whether people who put down law as a preference also put down medicine. So perhaps the statement in your post was a bit strong and your response to DD was both intuitive and reasonable on the evidence available.

  • 5
    Andrew Norton
    January 31st, 2007 12:00

    Rajat – I also have applications data going back to 1993, which shows the same pattern of stability over time, despite differential HECS in 1997 and higher student contribution amounts in 2005. Between 1996 and 1997, only one subject area changed its market share by more than 1 percentage point, and that was Arts, which had acquired a relative price advantage. Between 2004 and 2005, no subject area had a change exceeding 1 percentage point of market share.

    Since the current subject classifications were introduced in 2001, only IT has had a large loss of applications market share, with a smaller but still more than 1 percentage point loss in management. I would theorise that these courses are attractive to students with a purely instrumental view of higher ed. However, overall I think the interests theory has more explanatory power than the alternatives.

  • 6
    Francis Xavier Holden
    January 31st, 2007 14:25

    I don’t get too excited about early childhood education but the general idea of “rebates” / remissions or savings for going to remote and rural areas or shortage areas is generally a better one than bonding. Bonding needs a committement by the student/professional upfront whereas the remission method lets students leave it until the last minute (at least 3 years say for nurses) before committing, so there would be less resentful seeking of exemptions/ gaming that goes on in bonding.