Posted: 2024-05-04 14:01:00

Minister for Skills and Training Brendan O’Connor said: “By backdating this reform to last year, we’re making sure that apprentices, trainees and students affected by last year’s jump in indexation get this important cost-of-living relief.”

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Australia’s university fee program – known as HECS when it launched in the 1980s and since renamed HELP – is widely viewed as a successful scheme that allowed many Australians to gain degrees and increase earning capacity.

The scheme forces students to pay only when their income meets a certain threshold.

But student advocates, crossbench MPs and experts have recently questioned the fairness of the scheme as universities increased fees and inflation spiked, causing indexation to jump.

Independent MP Monique Ryan – a member of the cohort of teal MPs who were heavily backed by younger voters in their former Liberal electorates – gathered 270,000 signatures on a petition to modernise the student loan system.

She said last month that a person on a $60,000 salary with a $25,000 outstanding debt would have seen their debt grown by about $1200 if it was indexed to inflation in the middle of this year.

Member for Kooyong Dr Monique Ryan.

Member for Kooyong Dr Monique Ryan.Credit: Alex Ellinghausen

“Yet over the past year they will have paid off only $1200. In other words, hundreds of thousands of Australians with a HECS debt are either treading water or seeing their HECS debts increase despite working hard to pay them off,” she said.

“This is untenable.”

Economics professor Bruce Chapman, a founder of the HECS system, said it was unprecedented for a government to wipe debt retrospectively.

“However, this will not change how much a graduate pays in any given year or period because repayments are levied as a proportion of a person’s income,” he said.

Australian National University economics professor Bruce Chapman.

Australian National University economics professor Bruce Chapman.

Chapman said the move would have the effect of lowering the size of a person’s loan and therefore decreasing the amount of time it would take to pay off their debt, which effectively operates as a levy on income. For example, he said a person who might be on track to pay their debt off in a decade might now be able to do so six months earlier.

Chapman said there had been a lot of anxiety in the community about the 7.1 per cent indexation last year, leading to widespread media coverage and political pressure on Labor.

It was rare that inflation ran at a significantly higher rate than wages growth, he said, meaning Labor’s change to the indexation calculation is unlikely to be as meaningful in future years as it was during the recent inflation outbreak.

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“I think this will be welcomed, and it’s a politically astute move,” he said.

In another Albanese government announcement ahead of the May 14 budget, Finance Minister Katy Gallagher revealed Labor had found $1 billion in savings from cutting the use of consultants and contractors.

The saving comes on top of $3 billion of future external labour spending cut by the government last year.

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