Graduates to save hundreds on student debt

AN estimated three million student debts across Australia will be reduced by hundreds of dollars, after legislation changing how indexation charges on the debts are calculated passed through the Parliament.

Indexation is applied to outstanding student debts in June every year and has previously been based on the inflation rate, or Consumer Price Index (CPI), which measures the percentage change in the price of a basket of goods.

The reforms, passed earlier this month, mean student debts will now be indexed to the lower of either the CPI or the Wage Price Index (WPI), which measures the changes in wages over time.

This will see the average HECS debt of $27,000 cut by about $1200, while a $50,000 HECS debt will be reduced by about $2200.

Education Minister Jason Clare said the reforms will benefit all Australians with a student debt, rectify last year’s spike in indexation of 7.1 per cent and prevent indexation from outpacing wages into the future.

The changes will be backdated to June 1, 2023, lowering the indexation rate from 7.1 per cent to the WPI of 3.2 per cent.

This year’s indexation rate will also be reduced to 4 per cent, down from 4.7 per cent.

“This wipes out what happened last year and makes sure it never happens again,” Mr Clare said.

“Now the legislation has passed, the ATO will automatically apply these credits as soon as possible.”

Earlier this month, the Federal Government also pledged to cut a further 20 per cent of all student debt, raise the minimum repayment threshold for student loans and lower repayments by June 1 next year, should Labor win the next election.

This would result in an average debt reduction of $5500.

Meanwhile, the minimum student debt repayment threshold will rise from $54,435 to $67,000, with repayments to be calculated on the income earned above the $67,000 threshold, rather than based on a graduate’s total annual income.

“This is a game-changer for the more than three million Australians with a student loan,” Mr Clare said.

“All up this means we are wiping close to $20 billion in student debt.”

Minister for Skills and Training Andrew Giles said the move will deliver welcome cost-of-living relief to students and graduates across the country.

“This support applies to all government student loans including vocational training, so whether you’re an apprentice or a tradie, a carer or a nurse, if you’re paying off a student loan, you’ll receive this cost of living relief.”