The Australian Government will cut $3 billion worth of student debt for more than three million Australians in an effort to ease cost of living pressures.

In the release of the Federal Budget earlier this month, the Government announced its commitment to cap the HECS-Help indexation rate to be the lower of either the Consumer Price Index (CPI) or the Wage Price Index (WPI).

Data sourced from the Australian Bureau of Statistics (ABS)

Indexation maintains the real value of the loan by adjusting it in line with changes in the cost of living as measured by the Consumer Price Index (CPI), which measures the rate of inflation.

Data sourced from the Australian Taxation Office (ATO)

With the proposed HECS-HELP reform, indexation may now be adjusted in line with the Wage Price Index (WPI), which measures changes in the price of labour, while holding the quality and quantity of work constant.

The latest inflation figures have revealed that HECS-HELP debt is set to rise by 4.7 per cent by June 1, the second highest growth in over a decade, falling under the 7.1 per cent increase last year.

Under the HECS-HELP reform, this number would be reduced to a projected WPI figure of 4.1 per cent.

Despite this, the Australian Taxation Office (ATO) has maintained the 2024 indexation rate at 4.7 per cent, saying the government will back-date the relief of all student support loan accounts that existed on June 1, 2023, when legislation is passed.

Data released by the Australian Bureau of Statistics (ABS) in the March 2024 quarter, indicates the CPI rose 1 per cent in the March 2024 quarter, with the most significant contributor being education, which rose 5.6 per cent.

Similarly, the WPI rose 0.8 per cent in the March 2024 quarter, and 4.1 per cent annually, with one of the largest industry contributors being education and training at 0.8 per cent.

The proposal of a HECS-HELP reform has followed in response to the Australian Universities Accord Final Report which was released earlier this year.

The Australian Universities Accord is the largest and broadest review of the higher education sector in 15 years and contains 47 Government recommendations for higher education reform for the next decade and beyond.

Minister for Education, Jason Clare, said that the Albanese Labor Government has responded to the recommendations for education reform suggested by the Universities Accord.

“The big hike in HECS-HELP debt last year hit a lot of Australians hard, in particular a lot of young Australians,” Mr Clare said.

“They’ve made their voice heard.”

“We’re going to backdate this (reform) to last year. In other words, we’re going to wipe out what happened last year and make sure it never happens again.”

University student Isabelle Diana said the HECS-HELP reform will allow her to claim an estimated $4,000 of indexation credit for 2023 and 2024, according to the Department of Education.

“I’m currently doing a master’s degree, so I’m looking at paying off quite a large debt,” Miss Diana said.

“Last year was ridiculous. My loan was indexed about an extra $6,400.”

Miss Diana said she hopes the HECS-HELP reform will give additional support to students as they pay off their degrees.

“Getting a university degree is a huge financial commitment, so I hope this reform will make it that little bit easier to pay it all off.”

The HECS-HELP reform will allegedly halve the rate of indexation from the prior year’s spike from 7.1 per cent to 3.2 per cent in 2023 and from 4.7 per cent to around 4 per cent in 2024.

According to statistics from the Australian Taxation Office (ATO), people with HECS debt earning an average income of $90,000 will be facing a 5.5% repayment rate.

Under the current system, data indicates the average time to repay a HECS-HELP loan is about ten years.

Data sourced from the Australian Taxation Office (ATO)

Wollongong resident Daniel Jackson said the cost of a degree has stopped him from attending university.

“I thought about going [to university], but the thought of being in so much debt made me change my mind.”

Mr Jackson said the proposal to cap indexation to the lower of either CPI or WPI may not be as effective as it seems.

“Seeing this plan for the new HECS-HELP legislation is great, but it makes you wonder how much of a difference it will really make when the cost of living is still so high.”

Economist Associate Professor Alfredo Paloyo from the University of Wollongong expressed similar concerns in an expert opinion piece written for The Stand (a UOW publication) earlier this month.

Mr Paloyo said the HECS-HELP reform will disproportionately benefit higher-income Australians while shifting the cost to those in the lower half of the income distribution.

“While they may receive a short-term financial boost from the lowered indexation rate, the long-term burden will fall on taxpayers, potentially leading to cuts in social services and infrastructure that benefit all Australians.”

“As long as inflation remains unpredictable, this new system will fail to deliver the certainty that students and taxpayers deserve.”

In a media release responding to the Universities Accord earlier this month, Jason Clare said the Government is setting a national target of 80 per cent of the workforce having a tertiary qualification by 2050.

“If the broader Accord targets were achieved, around $240 billion in additional income would be added to the economy over the period to 2050.”

Additional changes include the introduction of a Commonwealth Prac Payment for teaching, nursing and midwifery and social work students undertaking mandatory placements.

As well as this, FEE-FREE Uni Ready courses will be introduced to provide more students with an enabling pathway into higher education.

“This is expected to increase the number of students undertaking these courses by 40 per cent by 2030 and double the number of students by 2040,” Mr Clare said.

The changes to indexation arrangements, as well as the increased funding for education under the Australian Universities Accord, reflect an ongoing investment in schools, higher education, and vocational education and training programs.