The Federal Government will wipe $3 billion in student debts as part of an overhaul of the national student debt system announced on Sunday.
The wiping of student debts will be backdated to June 2023, erasing the historic 7.1% increase added to student debts caused by ‘indexation’ last year.
Under the changes, the Government estimates that a $25,000 HECS debt will be reduced by over $1,000.
New measures will also ensure that indexation – the annual increase in student debt to reflect inflation (rising prices) – cannot be as high as it was last year.
HECS debts wiped
On Sunday, the Government announced plans to base student debt indexation on the lower of either the Consumer Price Index (the rate of inflation) or the Wage Price Index (the figure measuring rising wages).
This will be backdated to last year. This means last year’s WPI of 3.2% will be applied to debts, instead of the CPI of 7.1%.
Background
An overhaul of the student debt indexation system was recommended by an independent review of Australia’s higher education system earlier this year.
The review suggested a cap on indexation to avoid significant increases during periods of high inflation.
This came after last year’s indexation rise of 7.1% – the biggest rise recorded since 1990.
Wiping 2023 indexation
Education Minister Jason Clare said backdating the student debt reforms to 2023 would “wipe out what happened last year and make sure it never happens again”.
The reform will be subject to the passing of legislation through Federal Parliament.
Indexation will be applied again at the start of next month – it has not yet been confirmed what this rate will be. The latest CPI was 3.6%, while the WPI is 4.2%.
