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:)