Somewhat to my surprise, the feistiest part of Sunday night’s debateÂ (“pathetic!”, “dishonest!”) was a discussion about whether an OECD report on public education spending had properly taken account of Australia’s HECS system. I had always assumed that this was because taking account of the implicit interest rate subsidy was technically difficult. But I’m told that actually there isn’t an implicit interest rate subsidy under HECS. Apparently, the way it works is that the university gets the HECS amount less 20%. So if the student pays upfront and takes the 20% discount, the money is channeled directly to the university. If the student pays later, 80% of the money goes to the university, and the remaining 20% goes into government coffers to compensate for foregone interest. So if this is right, then the OECD approach (ie. ignoring HECS)Â is a perfectly accurate way to calculate the Australian government’s contribution to education.
Update: Andrew Norton (who knows far more about the details of this than me) writes that the university gets the full 100%, not 80%.Â Apologies for the incorrect information on this point. However, Andrew argues that the OECD comparison is nonetheless reasonable, since other countries run budget deficits to pay for higher education -Â an interest rate cost akin to the one that the Australian government incurs via HECS.