By Rachel Clun
Student debts are expected to be slashed this year after the federal government announced it was changing the way higher education loans are indexed each year.
“We’re wiping more than $3 billion of HECS debt for more than 3 million Australians,” Education Minister Jason Clare said recently.
But how will the change to HECS indexation actually work? And what will it mean for you? Here’s a quick guide.
The government is going to apply credits to all student debts that were indexed on June 1 last year, and June 1 this year.Credit: Peter Braig
When does HECS indexation occur, and what is the HECS change in 2024?
Currently, student loans – mostly Higher Education Loan Program (HELP) loans for university degrees – are indexed by the rate of inflation.
This is calculated using the Australian Bureau of Statistics’ consumer price index, but is slightly different to the annual inflation rate (there’s a full explanation here).
That indexation rate is applied on June 1 each year to the balance of debts that have been unpaid for more than 11 months.
Last year, the indexation rate was 7.1 per cent, and this year, the rate that will be applied on June 1 is 4.7 per cent.
The change the government wants to make is for loans to be indexed to whichever is lower of the consumer price index or the wage price index, which measures the annual growth of salaries and wages.
How will the change work?
The government will make the change retrospective, once it passes legislation.
Given the wage price index up until September last year had been below 4 per cent, it means the indexation rate for June 1, 2023, will be slashed from 7.1 per cent to 3.2 per cent, and the rate for June 1 this year will be cut from 4.7 per cent to 4 per cent.
What that all means is once the legislation has passed, the government will apply a credit for the difference between the rates of indexation on all existing student loans.
Has HECS debt been wiped?
No.
The government is just giving some money back as part of a cost-of-living relief measure, and the change has not yet taken effect.
The government needs new legislation to make this happen, and the bill is unlikely to be put before the House of Representatives during the next sitting of parliament in the coming fortnight.
It means the original June 1 indexation rate of 4.7 per cent will be applied to all debts, but that is factored in to the government’s budgeting, which is why its calculations also include a credit for 2024.
Using the Education Department’s HELP indexation credit estimator, someone with a student loan of $20,000 would get a $730 credit for the 2023 change and a $170 credit for the 2024 change, for a total of $900 knocked off their debt. Someone with a $60,000 debt would get a total credit of $2690.
How do I get the HECS debt credit?
People with HECS debts don’t need to do anything to receive the credit. It will be applied automatically by the Australian Taxation Office once the legislation has passed.
The ATO is also the place to go to see how much debt you have left.
What happens if I recently paid off my HECS debt?
Anyone who paid off any outstanding debt since June 1 last year will still receive the credit. If there are no new student loans, that credit will simply become a tax credit.
That means people with no outstanding HELP debt, or other Commonwealth tax debts, will receive the credit as a tax refund, mostly likely in the upcoming financial year.
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