The Federal Government will cut $3 billion in student debts, in measures to be announced in next week's budget. The reforms will see the student loans of three million graduates by an average of $1200 and changes to loan indexation.

Camperdown

The Australian government has announced a significant financial reform affecting university students nationwide, with the Prime Minister addressing concerns over the burgeoning student debt crisis. In a recent statement, the government revealed plans to eliminate $3 billion in student loan debt, marking a pivotal shift in how student loans are indexed. Under the current system, Higher Education Contribution Scheme-Higher Education Loan Program (HECS-HELP) debts are annually adjusted to reflect inflation rates, as measured by the Consumer Price Index (CPI).

The new policy introduces a crucial change by setting the indexation rate to the lower of two figures: CPI or a measure for wage growth. This adjustment comes in response to the 7.1% increase in student debt in 2023 due to CPI; had wage growth been the benchmark, the increase would have been only 3.2%. The government plans to apply this policy retroactively, erasing the inflation-adjusted debt increase from the previous year and preventing similar spikes in the future.

This reform is meant to alleviate the financial burden on students, exemplified by a typical scenario where a student with a $26,500 HECS debt will now save approximately $1,200 in repayments. However, critics argue that while helpful, this measure merely serves as a temporary fix to a more systemic issue, highlighting the need for a comprehensive overhaul of the student loan indexation system to prevent debt from growing undesirably.

The adjustment to the indexation rate was among the recommendations in the Australian Universities Accord, an extensive review of the tertiary sector published in February, which included a total of 47 recommendations aimed at reducing the pressure of student loans. The government has indicated that this is only one of several initiatives drawn from the Accord to be implemented, with more changes anticipated in the forthcoming budget. The move to revamp the indexation of student loans requires legislative approval and is expected to result in a decrease in anticipated government revenue from student debt.



Labor to wipe $3 billion of student debts

Students have made it clear they're being set up to drown in debt and it can be a deterrent to go to university. Now the Prime Minister wants to show he understands. Hi, I wanted to speak to you about an important announcement. And it's certainly a talking point. We're wiping $3 billion from student debt. What the government is doing is changing the indexation on student loans. Currently a HECS HELP debt is adjusted annually to match inflation, the Consumer Price Index. Now the indexation rate will be set at whatever is lower, out of CPI and the measure for wage growth. This became a big issue because in 2023, student debt increased by 7.1% because of CPI. If it was being tied to wages, it would have been 3.2%. We're going to backdate this to last year. In other words, we're going to wipe out what happened last year and make sure that it never happens again. So it'll use the wage rate from 2023 and the change credited. It has to get through Parliament first and will mean a loss in government revenue from student debt. For a HECS debt of $26.5 grand, that student will now pay back $1,200 less than they would have. This is tinkering. This is putting a Band-Aid over a much larger solution. It's not going to stop the issues of indexation. Student debt should not be growing at all. It's highway robbery. This change was put forward in the Australian Universities Accord, a big review of the tertiary sector released in February. It was just one part of a recommendation to reduce the burden of student loans. Are you going to look at doing A, B, C and E as well? We are looking at the whole report. There are 47 recommendations in the whole report. The issue of indexation has long and loudly been criticised. So it's clearly been prioritised to try to alleviate the pressure on the government. But it's not the only recommendation that will be included in the upcoming budget. You'll see more in the budget is the short answer to that question.

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