The Federal Government’s HECS indexation changes have passed Parliament.
Indexation is an annual increase applied to student debt to reflect inflation (rising prices). New legislation means indexation cannot exceed the lower rate of either inflation or wage growth figures.
The plan will be backdated to June 2023, erasing the 7.1% increase added to student debts caused by indexation last year.
The reforms will cut $3 billion in student debt for an estimated three million Australians, the Government said.
Context
Student debts increase annually to reflect the change in the value of money over time.
The Government announced a suite of proposed reforms to the student debt system earlier this year, after an independent review of Australia’s higher education system.
The review recommended a cap on indexation to avoid significant increases during periods of high inflation.
Last year, indexation saw student debts increase by 7.1% — the highest indexation figure since 1990.
Reforms
Reforms passed on Tuesday mean that indexation will be based on the lower of either the consumer price index (CPI, aka inflation) or the wage price index (WPI, the figure measuring rising wages).
The new law 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% (a difference of 3.9%).
Under the changes, the Government estimates that a $25,000 HECS debt will be reduced by over $1,000.
Money owed
The reforms mean the Government will essentially owe people a 3.9% refund on the HECS indexation they were charged in June 2023.
For Australians still paying off their HECS, this will be taken off their debt balance automatically.
However, those who’ve paid off their HECS in full since the 7.1% increase in June 2023 (approximately 174,000 people) will have the 3.9% difference credited directly to their bank accounts.
The reforms mean the Government will essentially owe people a 3.9% refund on the HECS indexation they were charged in June 2023.
For Australians still paying off their HECS, this will be taken off their debt balance automatically.
However, those who’ve paid off their HECS in full since the 7.1% increase in June 2023 (approximately 174,000 people) will have the 3.9% difference credited directly to their bank accounts.
Other measures
Education Minister Jason Clare said the bill “wipes out what happened last year,” and ensures it “never happens again.”
Clare said there was “more to come,” after Earlier this month, Labor promised to cut all student debts by 20% if it wins next year’s election.
The Government said it also plans to increase the minimum salary an individual needs to earn before they start making repayments to their loan.
Opposition
While the Coalition supported the bill’s passage, Shadow Education Minister Sarah Henderson said: “This is nothing to crow about”.
She questioned how much debt the bill will actually remove, calling it “smoke and mirrors.”
Henderson also called for the Government to secure deals with NSW, Queensland, Victoria, and South Australia to fund public primary and high schools, calling it a “school funding war”.
