Cost of living crisis sparks call for HECS debt overhaul

Labor is being pushed to help people already “counting every dollar” and end the double financial hit on student debts where the interest hike on loans is applied before compulsory repayments are subtracted.

Labor is being urged to end the double financial hit on Australians with student debts where the interest hike on loans is applied before compulsory repayments are subtracted.

Independent Senator David Pocock is calling on the federal government to ease cost of living pressures by stopping the current HECS-HELP system of indexing debt before compulsory payments are taken into account.

Students or graduates who earn more than $51,550 a year automatically have a percentage of every paycheck deducted to pay down their debt.

But the amount paid is not credited against the loan until after that year’s tax return is processed, meaning about 90 per cent of repayments are not deducted before the interest rate hike.

Voluntary repayments, which make up only about 10 per cent of payments, are deducted from a student loan balance prior to indexation.

Independent ACT Senator David Pocock says Labor must do more to help student debt. Picture: NCA NewsWire / Martin Ollman

Mr Pocock said the cost of living crisis was hitting students hard as they faced “huge increases in rent and groceries alongside inadequate Austudy payments”.

“HELP indexation is something the government could take action on now,” he said.

“In the first instance they could look at tying indexation of student debt to something like the long term govt bond rate or CPI, whichever is lower, and ensuring indexation isn’t applied to compulsory repayments that have already been made.”

Mr Pocock said student debt, which has topped $74 billion, was an “increasingly significant issue” for many Australians.

“These simple changes could make a significant difference for young people counting every dollar in today’s cost of living crisis,” he said.

University students, like those at Sydney University are struggling with the cost of living. Picture: Damian Shaw

Education Minister Jason Clare said HELP loans were indexed “so taxpayers get their money back”.

“We lend $1 and the taxpayer gets the real value of that dollar back,” he said.

“If you remove indexation, then it’s the taxpayer that cops the bill.”

Education Minister Jason Clare says student debts are indexed to ensure taxpayers get an accurate return on the loan. Picture: NCA NewsWire / Martin Ollman

Mr Clare said the Australian Universities Accord had looked at a range of issues, including access and affordability and how the HELP system interacts with the tax system.

“The government will release the Accord’s final report shortly,” he said.

“I want more young people from the outer suburbs and the bush to get a crack at going to university.

“Going to university opens up opportunities and makes you money.”

Student debt indexation is calculated annually based on Australian Bureau of Statistics inflation figures.

The Greens and Tasmanian Senator Jacqui Lambie have also backed a freeze on indexing debt for Australian students and graduates.

Ms Lambie described the annual hike as a “whole new low”.

“I don’t think HECS should be indexed, we should be making it easier for young people to get ahead, not harder.”