HECS-HELP indexation: Pay as you go student loan repayments ‘fundamentally unjust’

A little-known quirk of the tax system is about to take a “cruel” blow on three million Aussies with HECS debt.

Millions of Australians who are diligently paying back their university loans are staring down the barrel of a whopping 7.1 per cent increase to their debt before their repayments are even counted, thanks to a quirk of the tax system blasted as “fundamentally unjust”, “dishonest” and “cruel”.

For those with a HECS debt who earn over $48,361, a percentage of their earnings is held aside from each pay slip to pay back the loan, but in reality those dollars aren’t deducted from the debt balance until tax time.

Greens Senator Mehreen Faruqi described the repayment process as “fundamentally unjust”, warning a “debt avalanche is just days away” on June 1 when indexation is applied.

“Desperately needed money is being taken out of people’s pay slips to pay off their student debt when they’re on really low incomes, that they could be using to pay for rent, medicines, and food – and I know that many young people are skipping meals to pay their bills,” she said.

“The system is so unfair and unjust and cruel.”

Greens Senator Mehreen Faruqi addresses a student protest. The Senator has been advocating for changes to the way HECS debts are indexed and repaid. Picture: NCA NewsWire/ Dylan Robinson

The senator has been advocating to freeze indexation and to raise the minimum repayment wage, but discussion of her proposed bill was blocked during the Senate’s final sitting week before the June 1 deadline.

Foundation for Young Australians CEO Nick Moraitis also said the current HECS repayment system is unfair.

Foundation for Young Australians CEO Nick Moraitis. Picture: Supplied

“Indexation is applied to student debts at the level the sum was at the beginning of the 2022-23 financial year, instead of reflecting the reduced balance graduates have been paying off in real time,” Mr Moraitis explained.

“Young students and graduates losing part of their wage every payday … would reasonably expect the Australian Taxation Office to … reduce their HECS debts as they’re paid.”

An ATO spokesperson confirmed pay-as-you-go amounts withheld are paid directly to the ATO, but the real amount owed is calculated only after an income tax return is filed.

“It would require a legislative change to have withheld PAYG amounts, particularly those withheld for “potential” compulsory repayments, dealt with in a different fashion,” the spokesperson said.

32-year-old Jane Body will have over $5500 added to her debt in June, exceeding what she’ll been able to pay back on her $78,000 Master of Business on her new salary of $85,000 at the end of this financial year after recently changing jobs.

Jane Body, general manager of youth advocacy group Think Forward, will cop a significant increase to her student debt on June 1. Picture: Supplied

“It feels pretty disheartening after doing the work to land myself a better paying job. The irony is loud,” Ms Body said.

The loss of income towards HECS repayments over the next two decades weighs heavy in her decision to start a family, she said.

“It’s a really scary thing when you’re looking down the line. I know a lot of people that are getting to the end of their paycheck every time, and an extra $50 in their pocket would mean a lot. The whole system needs reform.”

NSW schoolteacher Justin Bradley has still been left with a huge HECS debts after 7 years of teaching. Repayments are taking a noticeable toll on his take-home pay. Picture: Sam Ruttyn

Inner west schoolteacher Justin Bradley was shocked to learn his payments over the last 11 months wouldn’t be counted come June 1, despite them making a noticeable impact on his take-home pay.

“In what world is that fair?” he said.

“Now I don’t have that money in my pocket to be able to spend on day to day life, and then you’re indexing me on something that I’ve already paid money back for?”

The 31-year-old left university with a $30,000 HECS debt, and after 7 years teaching still has $17,000 to pay. Indexation will add over $1200 to his outstanding balance.

“It’s kicking us while we’re down, essentially,” Mr Bradley said.

“Prices are increasing, and all the while my salary hasn’t increased and the debt that I’m paying is being indexed at a ridiculous rate.”