Over the weekend, the federal government announced its intention to make significant changes to the way HECS (Higher Education Contribution Scheme) debts are indexed. As the most common form of university student loan in Australia, these proposed changes could potentially impact millions of people. However, it’s important to note that these changes are not yet law and must pass parliament after the release of the 2024 budget.

What are the proposed changes?

The government aims to modify the calculation method for the annual increase in existing HECS debts, known as indexation. Currently, HECS debts are indexed in line with the inflation rate, or the Consumer Price Index (CPI). Critics argue that indexation should instead be linked to wage increases, which are determined by the Wage Price Index (WPI) figures.

Under the proposed changes, HECS indexation would be calculated based on whichever figure is lower between CPI and WPI. This adjustment could potentially lead to slower growth of HECS debts, providing some relief to student loan borrowers.

What is the HECS indexation rate for 2024?

The exact HECS indexation rate for 2024 remains uncertain at this point. The new changes require waiting for the release of the WPI numbers, which are scheduled to be published on May 15. The federal government estimates the indexation rate will be around 4 per cent, which is 0.7 per cent lower than the original projection.

To promote these changes, the government has released a calculator designed to help individuals estimate how the modifications could affect their HECS debts. However, it’s crucial to keep in mind that the actual reduction in loan amounts is subject to the passage of legislation and its specific content.

What was the previous expectation for the HECS indexation rate?

Prior to the announcement of the proposed changes, the HECS indexation rate for 2024 was expected to be 4.7 per cent. This figure was based on the CPI, as indexation was previously tied to the inflation rate. The CPI numbers were released last month, but the newly proposed changes have introduced uncertainty regarding the final indexation rate.

What was last year’s HECS indexation rate?

In the previous year, the HECS indexation rate was 7.1 per cent, which was based on CPI data. This relatively high rate led to a significant increase in HECS debts for many individuals. As part of the proposed changes, the government intends to backdate the new indexation calculation method to the previous year. If the legislation passes parliament, the indexation rate for last year would be adjusted to 3.2 per cent.

If the legislation is approved, people will receive a credit on their HECS debts to account for the difference between the original and revised indexation rates from the previous year.

Will these proposed changes become law?

The fate of these proposed changes will become clearer in the coming week. As national education and parenting reporter Conor Duffy explains, while the government holds a majority in the House of Representatives, it requires support from parties like The Greens or the crossbench to pass legislation in the Senate.

Some senators who have previously supported government legislation, such as independent senator David Pocock or Greens senator Mehreen Faruqi, have indicated their desire for more ambitious changes to the HECS system. They may make their support conditional on further modifications to the proposed legislation.

More information about the likelihood of these changes becoming law is expected to emerge after the release of the federal budget, which is scheduled for next Tuesday night.

The proposed changes to HECS debt indexation have the potential to provide some relief to student loan borrowers by slowing the growth of their debts. However, it’s essential to remember that these changes are not yet set in stone. The final outcome will depend on the passage of legislation through parliament, and the specific content of that legislation may be subject to further negotiations and amendments.

As the federal budget approaches and more details emerge, it’s important for individuals with HECS debts to stay informed about the potential impact of these changes on their financial situation. While the government’s calculator offers an estimate of the effects, the final outcome will depend on the legislative process and any modifications made along the way.