There’s an interesting experiment developing at Osgoode law school involving the creation of (what is being called) an income-contingent loan system.  Dean Lorne Sossin outlines the plan a little bit in his blog, here.  There are some fairly big details missing from this description, for the quite good reason that the Dean is leaving a number of design features open, pending discussions with the faculty’s students.  But one crucial thing about this program is being obscured by the term “loan”: namely, that no money actually changes hands.

The language of “income-contingency” can make things a bit confusing.  Canada, as I’ve argued before, already has a system of student loans that is substantially income-contingent – but they are income-contingent loans.  What Osgoode is considering is an actual Australian-style income-contingent fee.  This is quite different.

In North America, the way student aid works is that an institution charges students a fee.  A student asks the government for money via student aid.  The government gives the student money, and the student pays the institution.  Technology makes this little money circle move pretty quickly, but the basic point is the money moves through the student’s hands (legally, if not in fact) before it goes to the institution.  The fee is immutable, and the loan contract is between the student and the government.

In Australia, the Higher Education Contribution Scheme works somewhat differently.  There is a HECS “charge” – that is, an amount a student notionally owes.  But there is no loan that goes through the student’s hands.  When the student is admitted, there is simply an agreement that the student will pay that notional amount down over time through his or her earnings.  Most do so, and relatively quickly; others never do because their incomes never reach the necessary threshold to trigger payment (re-payment is not required below about $51,000).  But as the title says, it’s a contribution, not a fee.  The contribution is conditional on future income, and so there is no “loan” in the sense that we understand it.  This is effectively what Osgoode is trying out.

You can see why this idea might be attractive: for those people who are put off by the sticker price, the idea of waiving up-front tuition seems like a pretty good deal.  But there are some legal/administrative issues that might make this more complicated that it appears at first glance.  The most obvious is how to manage repayment.  In Australia, the government monitors graduates incomes and collects repayment through the tax system.  Osgoode, to state the obvious, does not.  If there’s an Achilles heel here, this is probably it.

But that’s not the only problem to solve.  The other issue is how the waived tuition will be reported to the government.  If it is reported as zero, it will reduce a students’ eligibility for loans and thousands of dollars’ worth of tax credits.  Some reduction in public loans probably makes sense since they have less immediate need for liquidity; however, if the students don’t get the tax credits *and* they repay their entire tuition, they would actually be worse off over the long-run.

Hopefully, some solutions can be found to these problems.  Because its nice to see institutions innovating in making professional education cheaper for a change.