Rajat asks about deferral trends over time. The figure below is the percent of total student liabilities deferred 1989-2009.
Source: Higher Education Report 2009.
As you can see, the trend is consistent with discount rate having an effect. When it increased in 1993 from 15% to 25%, more people paid up-front and the deferral rate dropped. When the discount decreased from 25% to 20% in 2005, the deferral rate increased, ie fewer people considered it worth paying upfront.
The data is also consistent with the effect building over time. Perhaps one mechanism is that defer/pay habits are established in first year and continued, perhaps without awareness that discount rates have changed. But as new students who made a different calculation displace older cohorts, the % deferring changes.
On the other hand, we have some fluctuations from the mid-1990s to the early 2000s without any change in the up-front discount, so possibly other factors also influence the decision to defer or not. One quirk I cannot adjust for in the data is that New Zealanders and permanent residents are entitled to Commonwealth-supported place but not a HELP loan. They have to pay up-front without a discount.
With this caveat, I calculate that if the same rates of deferral in 2004 had applied in 2008, lending would have been $38 million lower (ie, lending increased by $38 million). However if the up-front discount rate had remained at 25%, its total cost would have been $45 million higher. So even making very pessimistic assumptions about repayment rates on the $38 million, the Commonwealth is ahead financially. But it suggests that the effects and savings are not that large in the context of annual lending of around $2.2 billion in 2009.