What the HECS? The next US president might need a lesson from Australian unis

There are clear policy differences between the candidates. The first, and the one getting a huge amount of attention, relates to different stances concerning access to abortion.

But there is a second important issue of policy difference, which is flying well under the radar, yet has the potential to very markedly affect the financial welfare of over 35 million Americans in the short run, and many hundreds of millions of people in the future.

It concerns public policies related to US college loans and the role of Australia's HECS system in the US debate.

The problem is extraordinary. To set the scene, if the $1.8 trillion of unpaid student debt in the US was the annual GDP of a country, it would be the world's 13^th biggest economy.

It is undoubtedly the biggest ever level of any nation's education debt and is larger than the entire national debt of all but 17 countries.

Not only are US college loan debts massive, but the system of repayment is one of the worst designed in the world.

It results in ruinous defaults and terrible repayment difficulties for millions of borrowers and means that US taxpayers have spent billions of dollars propping up a failed system.

These dysfunctions discourage youth from getting the education they need to live up to their potential, weakening the entire US economy.

Student loans policy is a major area of disagreement between Kamala Harris and Donald Trump, which can be understood by looking at the fairest and most effective student loan programs in world, which are in Australia, England, New Zealand and Hungary.

In these countries all student loan borrowers are enrolled in a single and easy-to-understand system in which loan repayments depend only a debtor's future income, with repayment made easy within the tax system.

The essential problem with US college loans is that most borrowers are required to make the same payment every month for 10 years after they leave school.

Thus, if there are financial problems from unemployment, not graduating, looking after an aged parent, or not getting as high a paying job as they might have hoped, they still must repay the debt, whatever the hardship.

When they can't do this for a period, they will default, which results in ruined lives because of damaged credit scores from default. Many millions of citizens are in terrible situations because of this.

If repayments were determined instead only by a debtor's ability to repay, all these difficulties disappear, with this arrangement having been running very well for decades in Australia.

The conditions for a successful adoption of HECS are in place in the US. Doing so would improve educational access for the most vulnerable and disadvantaged and would deliver macroeconomic and budgetary benefits for the whole country.

How do the presidential candidates differ on this key issue? Neither has released a proposal, so we must look to their past records for clues.

The Biden-Harris administration has presented for consideration the most generous income-based plan in US history, with payments set at less than 5 per cent of income for most borrowers.

But the plan has been placed on hold by the courts while they consider presidential authority to implement such a sweeping change. Importantly, the plan would automatically enrol in the new system borrowers who can't now meet repayments because of financial difficulties, an aspect of the plan which will protect many people from defaults.

These changes would move US college loans towards alignment with the best-designed systems around the world, that is Australia, New Zealand, and England, where borrowers automatically pay their debts based on their incomes and defaults and ruined credit scores are non-existent.

Vice-President Harris will presumably continue these policies, if they survive legal scrutiny, and push for legislation if they don't.

READ MORE:

What a second Trump administration would do is unclear. Trump has not released any policy proposals on student loans, although allies on Project 2025 have proposed privatising the entire student loan program.

However, privatised student loan programs can't work because repayments can't be collected based on a debtor's income; government is needed.

As well, the incentives of the private sector to maximize the amounts they squeeze out of students is incompatible with the objectives of maximizing educational access and borrowers' wellbeing.

We stress that nowhere in the world has there been a functional implementation of privatised income-contingent program.

Further, none of the Trump policies address the key issue of automatic enrolment into income-contingent loan repayments, and this matters critically in the evolution to the right system.

While there remain key issues of detail to work out, the Biden/Harris plan is essentially a transformation of the country's destructive college loans to that of HECS-style system.

Trump seems to want to leave the current mess alone, or to move it away from a government run loan, which must exclude the possibility of the right way to go.

This distinction, and what it might mean if Harris is elected, can transform in the lives of millions of Americans in terms of access to college.