Why HECS debts have increased despite a promised 20% cut

Ahead of this year’s federal election, Labor promised to discount 20% from all student debts if re-elected.

However, if you checked your HECS debt today, you might’ve noticed it’s just gone up. That’s because of indexation, the annual increase that adjusts your debt in line with today’s rising prices.

Legislation to implement the debt reduction has not yet been introduced to Parliament, and probably won’t be for at least another six weeks.

Here’s how and when it’ll happen.

Indexation

Indexation is the annual process where the Australian Taxation Office (ATO) adjusts outstanding student loans to reflect changes in the value of money over time.

Historically, it’s been tied to inflation. Following reforms last year, however, indexation is now capped at whichever is lower between the Consumer Price Index (CPI) and the Wage Price Index (WPI).

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This year, indexation will be 3.2%, based on the CPI, and applied on 1 June.

Reduction

The election promise will only come into effect once legislation has passed both houses of Parliament, which returns for a new working year on 22 July.

The reduction will be applied automatically by the ATO.

It will apply to the amount of your loan before indexation.

The indexation applied this weekend will then be recalculated based on the new, reduced loan amount.