The federal government will cut around $3bn in student debts through a key change to the Hecs and Help programs, reversing last year’s horror indexation hike and delivering a $1,200 saving for the average person.
The measure, to be outlined in this month’s federal budget, will ensure student debts can’t outpace wage growth in the future by capping the indexation rate for Hecs and Help loans – tying them to whichever is lower of the consumer price index (CPI) or wage price index (WPI).
Until now debts have been indexed to the CPI. The WPI has been significantly lower than the CPI in 2022 and 2023, but is expected to overtake the CPI by 2025. In 2023, the indexation rate based on the WPI would have been less than half that of the CPI, sitting at just 3.2%.
The change, which requires legislation, would be retrospective and backdated to 1 June 2023, effectively turning back the clock on last year’s indexation rate of 7.1%. The figure, which was the highest in more than a decade, caused many loans to grow faster than Australians could pay them off.
The education minister, Jason Clare, said changing the way Hecs/Help loans were indexed was a direct recommendation of the Universities Accord final report, handed down earlier this year.
“This will wipe out what happened last year and make sure it never happens again,” he said.
The reform would also apply to this year’s indexation rate of an estimated 4.8% – the second highest rise in more than a decade.
About 3 million Australians hold student loans, at an average debt of $26,500, and the measure would cut about $1,200 from their outstanding Hecs/Help debt this year.
Students with a loan of $50,000 would have their debt reduced by
$2,245, while students with a loan of $100,000 would save $4,485.
Clare flagged the Hecs/Help relief would be the first of a series of reforms to be implemented in response to the Universities Accord.
The accord called for other cost of living measures including a stipend for unpaid mandatory placements, scrapping the former federal government’s failed Job Ready Graduates Scheme and reducing student contribution amounts for low-income earners.
Crossbench MPs including Zoe Daniel, David Pocock, Monique Ryan, Allegra Spender and Kylea Tink have been urging Labor to act on student debt reform.
A petition started by Ryan calling for changes to the way Hecs/Helps loans were indexed had received more than 280,000 signatures, citing instances of students whose loans were growing faster than they are making repayments.
Ryan told Guardian Australia the petition had “struck a nerve” in broader society, with many Australians prompted to log in online and check their student loans with an “unpleasant shock”.
“Everyone is telling me how much of a distress [student debt] is … we have to recognise at this point that we do have a crisis,” she said.
The Greens have urged Labor to scrap the process of indexation and wipe student debt altogether.
The skills minister, Brendan O’Connor, said the changed to indexation would work to “reduce and remove financial barriers to education and training”.
“Vet student loans and apprenticeship support loans enable many Australians who otherwise couldn’t train or study to get the skills they need for secure and rewarding careers, and these changes make sure that help is provided on a fairer basis,” he said.
“By backdating this reform to last year, we’re making sure that apprentices, trainees and students affected by last year’s jump in indexation get this important cost of living relief.”
