HECS-HELP indexation spikes to 7 per cent

Australians will see the highest indexation rates in 32 years as student debt is hit with a seven per cent across-the-board hike.

The new rate on debt repayments will take effect from June 1.

HECS Indexation has spiked over the past three years starting at 0.6 per cent in 2021 after hitting 3.9 per cent in 2022.

Australia's student debt is ballooning. Outstanding debt tripled in the past decade growing from $25.5 billion to $74.4 billion.

Greens deputy leader and education spokesperson Senator Mehreen Faruqi said linking student debt to rising indexation was making life harder for people bearing the brunt of the cost of living crisis, soaring inflation and stagnating wages.

"Student debts are rising faster than they can be paid off," she said.

The Australian Bureau of Statistics (ABS) revealed the Consumer Price Index (CPI) figure for the March 2023 quarter was seven per cent.

HECS-HELP loans are designed to hold their value by keeping up with the CPI.

Greens leader Adam Bandt said "there's about 500,000 people across the country who have got a HECS debt of over $40,000".

"They're going to have to pay an extra $3,000 today as a result of the CPI figures and the indexation that the Government is ignoring," he said during a National Press Club address on April 26.

"So Labor is saying that we will put students and former students who have done the right thing into further debt in order to help balance the budget and ignore the big gas corporations and instead, fund a $9,000 a year tax cut to Clive Palmer," he said.

The government offers the cheapest loans on the market to help Australians access affordable higher education.

The Australian government doesn't profit from interest on student debts because the rising indexation keeps the loan's value equal over time.

Indexation is applied yearly like a snowball rolling down a hill.

Some students, who started with a larger debt, will see their loans grow more rapidly than expected.

No matter how large HECS-HELP debts grow the repayments will stay the same.

But the repayment time will lengthen.

Australia National University Professor Emeritus Bruce Chapman pioneered the HECS program under the Hawke federal government in 1989. The scheme is used by six countries.

A direct contribution from graduates towards university education was seen as a fair policy in 1989, Professor Chapman said.

"The government at the time wanted to expand higher education and the only way to do that was to have students pay for some part of it," he said.

IN OTHER NEWS:

HECS had high indexation rates for two years in the early 1990's before settling into the low average, despite a 5.3 per cent spike in 2001.

Generally, indexation rates have stayed low. Sitting between -0.1 and 3.9 per cent.

Professor Chapman said the yearly average increases on student debt "don't bowl you over".

"But seven per cent is big and unusual," he said.

Indexation rates (as a percentage) between 2013-2023

Student debt indexation is at it's highest rate since 1990, when it reached eight per cent.

"HECS has always been indexed to the CPI, none of this is new. What's new is the size of the inflation," Professor Chapman said.

Federal treasurer Jim Chalmers said "one of the good things about the HECS system is it means people only begin to pay back a sliver, a portion of their education costs when they earn a certain amount of money".

"The arrangements for HECS and for university loans and education loans have been unchanged by this government this is long-standing practice," he said during a National Press Club address on April 26.

"People pay it back when they reach a certain level of income, which I think is appropriate," he said.

"Obviously, this inflation in our economy has a lot of consequences. It means that payments are indexed so people can try and keep up, but it also means there are other aspects which are indexed as well," the treasurer said.

"Our job is to try and get on top of this inflation challenge in our economy to provide assistance where we can do that in the most responsible way and that's what we're doing," he said.

HECS-HELP loan repayments are taken out of former students' pay cheques by the Australian Taxation Office when they entered the workforce.

In 2023, former students earning more than $48,361 are expected to repay one per cent of their income. That percentage rises as income rises.

Repayment Rates and Income Thresholds for 2022-23

University of Technology Sydney researcher Dr Helen Taylor said indexation increases seemed "fairly minor" in the grand scheme, but repayments had a real effect on those who were struggling.

"Considering the cost of living, $48,361 doesn't go very far," she said.

"When you've got money coming out of that pay cheque, for a HECS-HELP debt that isn't going down, it can be pretty demoralising," she said.

Greens senator Dr Faruqi is campaigning to ease the effects of spiking inflation on student debts.

"The Greens are now calling on the Labor government to raise the minimum repayment income to median wage so people start paying off their student debt only once they start earning a decent wage," she said.

Dr Faruqi said students struggling to pay for groceries, rent, medicine and weekly bills should be spared from making repayments before they had benefitted financially from higher education.

"The current low minimum repayment income, which is barely above the minimum wage, is an act of cruelty," she said.

"The former Coalition government lowered the minimum repayment income, completely abandoning the fundamental premise that a graduate should not have to start paying their debt until they earn roughly an average wage and can afford to," she said.

"Labor, in opposition at the time, voted against these cuts, calling them unfair. But now they are effectively implementing Liberal policies," she said.

But many students can't afford to start paying the debt. The longer they leave it the larger it becomes.

A government-funded system for university education wouldn't be fair, Professor Chapman said.

Any arrangement that nullified indexation on HECS meant the general population paid for it, he said.

"Any subsidies for higher education comes from all taxpayers," Professor Chapman said.

"The vast majority of taxpayers are not graduates," he said.