Income-Contingent Loans

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The Research School of Finance, Actuarial Studies and Statistics (RSFAS) is contributing valuable research and policy outcomes in the area of Income-Contingent Loans (ICL). These are loans that people only pay back once they are earning income over a certain threshold.

A history of HELP

ANU has been leading the way forward with ICLs since the Government first used the work of RSFAS’s Professor Bruce Chapman to design and adopt ICLs in the higher education system, introducing what we now call HELP. Within higher education, the benefit of ICLs over traditional time-based repayment loans is that they protect graduate debtors from hardship and default because no repayments are required when people find themselves in low income situations. This in turn helps to break cycles of poverty and raises national economic growth to its full potential.

In Australia alone, it is estimated that more than 2 million people have benefitted from the HELP system since 2011, and that it has helped make as much as $30 billion of revenue available for use in the tertiary education system. More recently, Bruce, Associate Professor Tim Higgins and others have helped to introduce ICLs around the world in countries such as South Africa, New Zealand, UK, Hungary, Thailand and South Korea, improving the financial outcomes of more than 7 million people.

Impact abroad

This year Bruce and Tim attended a conference in Brazil to consult with a range of South American governments on the specific needs and contexts of their countries. They are currently working with these governments to help shape their ICL policies.

An indirect consequence of these collaborative relationships was the formation of a network known as the Centre for International Student Loan Research, based jointly out of the College of Business and Economics and University College London. This Centre aims to serve as a platform for policy makers to learn about the latest research in higher education financing and connect with experts in the field, and as a way for researchers to connect and share their works on higher education financing.

In parallel, Tim and Bruce have explored the benefits of ICLs in other contexts, including ICL use in paid parental leave, and for farmers experiencing drought who are at risk of insolvency. Using an ICL for parental leave provides an efficient and fair alternative to funding additional leave through general tax revenue. While financial assistance for farmers that is repaid contingent on a farm’s capacity to pay would minimise taxpayer subsidies and deliver insurance for farmers against default.

This is only one example of an active research area within RSFAS, but it is one that is already having a real impact on global policy and wellbeing.