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Go Back to the List May 08, 2023
MPs push to ease student debt burdens as record Help loan indexation looms

Proposal to abolish indexation projected to cost up to $1.3bn as MPs and students say higher education loan scheme is ‘no longer fit for purpose’

MPs are urging the federal government to ease the growing student debt burden in the upcoming budget despite forecasts showing that abolishing indexation would hit the budget bottom line by up to $1.3bn.

The latest consumer price index figures (CPI), released last week confirmed Help loans would increase by a record high of 7.1% when next indexed on 1 June, increasing overall student debt from about $74bn to just under $80bn.

Angus Shephard completed his PhD last year with a Hecs debt of $48,000.

On his current income, he will pay back around $1,500 of his debt in his next tax return. But with indexation, his debt will rise by around $2,700, meaning despite making the first dent in the loan, he will still be $1,000 further into the red.

“It’s such a crappy feeling,” he said. “You’re nearing 30 with a massive debt and nothing to show for it but a piece of paper … it feels like you’re being set up to go backwards.”

Independent MP Zoe Daniel says the burden of Help indexation could be smoothed with modest changes, including tying it to the wage price index (WPI) if it is lower than CPI, to counteract high inflation lagging behind wages.

The parliamentary library forecasts while CPI growth is likely to be higher thanwages growth in the short term, in the medium to long-term it is projected this trend will reverse.

“The impact would be to reduce very high levels of indexation associated with periods of real wage declines. This essentially caps indexation at wage growth during periods of high inflation,” the advice, provided to Guardian Australia, said.

Daniel also suggested placing a cap on indexation during volatile periods and applying indexation after compulsory repayments on student loans are made.

Modelling provided to Daniel by the parliamentary library found graduates could save hundreds of dollars a year in final payments if the system applied their repayments before applying indexation, with greater savings made for students with larger debts.

“These are all stopgap measures,” Daniel said. “After being set up in the 1980s, Help is no longer fit for purpose and is overdue for independent review.”

The Greens have been lobbying to remove indexation on student loans altogether and raise the minimum repayment threshold from $48,361 to the median wage of $64,399.

Their bill, submitted by Senator Mehreen Faruqi, was rejected last month, with the committee citing concerns over financial implications on the budget.

Faruqi told a speak-out in Sydney last week the system was “obscene … deeply unfair and … actually cruel”.

“The system is broken when student debt is rising faster than it can be paid off,” she said. “The system is broken when people have to start paying off their debt when they earn just a little more than minimum wage.”

Parliamentary budget office costings provided to Guardian Australia found Faruqi’s proposal would decrease the underlying cash balance by between $462m and $1.3bn, citing uncertainty over student loan growth, debtors’ repayments and economic volatility.

The Chief executive of Universities Australia, Catriona Jackson, said Faruqi’s proposed changes could take money “away from essential services” and any changes to Help should be “carefully assessed to ensure they do not risk the policy intent, which is to remove barriers to a university education”.

She said the body had asked the federal government to ensure students were included in any cost-of-living relief measures in the budget and for research spending to be increased.

On Monday, the shadow minister for education, Sarah Henderson, blamed student debt on “Labor’s failure to combat sky high inflation”, while falling short of calling for indexation to be abolished.

“There has been nothing but silence from [education minister Jason] Clare following the ATO’s announcement that student loans will be … the highest in 30 years,” she said.

“Mr Clare needs to do more than put his head in the sand.”

Clare said inflation was a “real issue” and he had tasked the universities accord expert panel to make recommendations about the future of the higher education system, examining student debt.

The panel is due to make an interim report by the end of June and a final report in December.

“It’s important to remember that Help loans are not required to be repaid until a person reaches the income repayment threshold … they don’t go up unless your salary does,” Clare said.

“It’s built on a really important principle – you pay what you can afford.”

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Written by Caitlin Cassidy,
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