| Abstract: | This paper develops a two period model of the higher education decision to determine the required return from higher education. It uses the model to calculate the proportion of full tuition costs which should be charged 'up front' under the Australian Higher Education Scheme (HECS), in order to compensate for the fact that such fees are not deductible against income for tax purposes. Because full tuition costs represent less than 11 per cent of the total costs of higher education, the ideal HECS ratio is relatively high, in the region of 0.7. The low relative importance of tuition costs means that fee subsidy schemes cannot possibly compensate for other distortions such as income tax progression which persist over the working life of graduates. |
