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Posted: 2023-06-02 07:01:25

Federal Education Minister Jason Clare has left the door open for changes to how HECS-HELP debts are paid back, including how indexation is applied to the original debt.

More than 3 million Australians saw their student debt rise with inflation on Thursday as an indexation of 7.1 per cent was applied to the debts.

It is the highest indexation in more than three decades, with average $25,000 HECS-HELP debts rising by $1,775.

The increase has caused major concerns that the increase could have a lifelong impact on the borrowing capacity of those affected and their ability to enter the housing market.

Under the current rules, indexation is applied to the original debt and not the current balance.

Mr Clare said changing indexation to have it apply to the original debt should be considered for reform and he has ordered that it be part of a wider review into higher education.

"If you've got a debt of $20,000, you pay off about $2,000 over the course of the next 11 months, then the ATO index is based on the original $20,000 not the $18,000 — that strikes me as not right," he said.

It comes ahead of an interim report to be handed down next month — which will include immediate recommendations — and a final report at the end of the year.

Jason Clare has ordered indexation changes to be part of a wider review into higher education.()

Independent MP Kylea Tink said a review of Australia's student loan scheme was urgently needed.

"The interest is added to their loan before any payments they made in the previous year are deducted — how can this be fair? To me, it makes no sense," she said.

"Inter-generational equity is one of the biggest challenges of our time: in the tax system, on climate change and on a forward-focused economy.

"The existing scheme also perpetuates gender inequity, with women holding 60 per cent of HELP debts and 58 per cent of the total $74.3 billion debt pool."

Labor rejects freezing student debt

In April, a Senate committee rejected a private member's bill proposed by the federal Greens — and backed by the National Union of Students — to halt indexation on student loans, freezing $74 billion in debt.

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