HECS-HELP indexation: Student loan ‘sugar hit’ puts spotlight on ‘crazy’ tax time trick

Australians paying off their university degrees are being warned they’re now at risk of being stung with a tax bill, as young people call for “more meaningful” measures to ease the cost of tertiary education.

Australians close to paying off their university degrees are being warned they’re now at risk of being stung with a tax bill, as young people and students call for “more meaningful” measures to ease the cost of tertiary education.

The Albanese government has promised to wipe 20 per cent off all HECS debts – now known as HELP loans – as its first legislative priority when the next parliament sits in July.

In the meantime however student loans have been “indexed” by 3.2 per cent, adding $640 to a $20,000 debt, and $1600 on a $50,000 balance.

Education Minister Jason Clare has given assurances that the 20 per cent reduction will be backdated prior to indexation, however that will come as little comfort to those expecting to have repaid their entire debt by tax time.

Leading higher education expert Andrew Norton warned some Australians will face a “messy transaction down the track”.

Leading expert and commentator on higher education policy Andrew Norton. Picture: Aaron Francis / The Australian

“If they do their tax return now, they might end up with a bill — and it could be quite some time before they have it paid back,” he said.

“It might be simpler to wait for the legislation to pass … however I wouldn’t recommend waiting any longer than the October 31 deadline.”

Co-founder of financial literacy platform Flux Finance Justin Joffe described the 20 per cent cut as a “sugar-hit” and said young people would welcome “a far more meaningful” fix to the timing of indexation.

“It doesn’t help the people who have been doing the right thing … who have been picking up extra shifts, working overtime, chipping away at their debt before June 1 but don’t get the benefit for it,” Mr Joffe said.

Co-founders of Flux Finance (left to right) Justin Joffe, Gustavo Hoirisch and Brett Joffe.

“It’s a bit like rocking up to a shop, buying something at full price, then finding out there’s a 20 per cent sale on the next day.”

Loans are currently indexed on June 1 every year, while regular repayments are only deducted from the balance at the end of the financial year on June 30.

Economist and commentator Professor Richard Holden said applying indexation before repayments are taken into account is “crazy”, and “should clearly be addressed” as a simple administrative matter.

“The ATO has incredibly sophisticated technology … there’s no excuse for not fixing that,” he said.

Professor Richard Holden, Scientia Professor of Economics at UNSW Sydney, addresses the National Press Club of Australia in Canberra. Picture: NewsWire / Martin Ollman

However Professor Holden is deeply critical of the proposed 20 per cent HECS reduction, which he described as “good politics” but “incredibly bad policy”.

“The entire HECS system recognised that there’s a public benefit to higher education but there’s also big private benefits … including higher average wages for those with university qualifications.

“HECS balanced those public and private benefits … but (under this policy) Australians who didn’t enjoy the benefit of higher education are writing a $16 billion cheque to those who did.”

In one example of the impact of indexation, a NSW schoolteacher who started their degree in 2014 and earned a full-time annual salary for the first time in 2017 would’ve paid off their original loan plus $2,400 in indexation by 2023.

However a young doctor in residence who started their eight-year degree in the same year would now be in $89,700 worth of debt, accruing nearly $18,900 of that in indexation.

Thomas Walker, CEO of youth-focused economic think tank Think Forward, said while the government’s “vote-winners” are welcome more needs to be done to make higher education affordable.

“It just feels like a band-aid fix, because … the cost of a university degree is still way too high,” he said.

Think Forward CEO Tom Walker.

Greens Senator Mehreen Faruqi. Picture: NewsWire / Damian Shaw

Greens Senator for NSW Mehreen Faruqi, the party’s spokeswoman on tertiary education, meanwhile called on the government to go much further by scrapping indexation altogether and “getting rid of Morrison’s terrible Job-ready Graduates fee hikes”.

“Ultimately, student debt can’t be fixed because student debt shouldn’t exist,” she said.

“Education shouldn’t be a debt sentence — university should be free like it was for the Prime Minister.”

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