Three million Australian graduates could save money on their university loans after the federal government acknowledged an accounting quirk was hurting students.
HECS debts rise on June 1 each year in line with inflation, but loan repayments are not processed until tax returns are lodged, often months later. As repayments are deducted from salary payments in real-time, indexation is applied to portions of debts already paid.
The complicated system means that, for example, a student who paid off $2000 from a $20,000 balance would have their indexation levied on the $20,000 figure rather than the actual remaining debt of $18,000.
Crossbench MPs including North Sydney MP Kylea Tink met earlier this week with Education Minister Jason Clare to discuss the matter, and on Friday the minister announced he had directed the government’s universities review panel to examine the issue.
“That strikes me as not right,” Clare said.
But Clare hosed down what he described as a misguided debate about HECS amid a Greens campaign to scrap this year’s indexation, which came in at an elevated 7.1 per cent, mirroring the recent spike in consumer prices.
Inflation has been low for much of the past decade, meaning student debt indexation had been lower than bank interest rates for many years until inflation spiked.
The minor party has been calling for student debts to be waived and rent freezes in a pitch to younger voters, prompting Clare to put a spotlight on the cost of Greens policies.
“There’s some confusion here in the debate around this,” he said.
“If you do what the Greens are talking about doing in getting rid of indexation altogether, it would cost the taxpayer $9 billion.”
He emphasised that yearly indexation was not the same as interest paid on bank loans. It did not need to be repaid immediately as student loan repayments were calculated as a proportion of a person’s income.
Pegging HECS debts to inflation, Clare stressed, meant graduates paid the taxpayer back for loans at a level that reflected the contemporary value of money.
In other words, detaching student loan values from inflation would mean students paid a smaller amount of money over time than they had been loaned by the government, resulting in a loss to the taxpayer.
“The taxpayer doesn’t make a profit at all. If there’s a change to the way this works – the indexation – then effectively the taxpayer has to pay more,” Clare said on Friday.
Tink said she had been disappointed with Clare’s response to calls to protect students from spikes in indexation, saying Labor had adopted a “classist … dog-whistling” approach.
But she welcomed Clare’s consideration of changing the timing of indexation and said it proved the power of the parliamentary crossbench to achieve policy changes.
Tink, who said she had been inundated with concerns from debt-loaded graduates, said one of her constituents had paid $12,000 off a $20,000 loan over the past 12 months but indexation was calculated on the original $20,000 amount.
Indexation should be tied to the lowest figure out of metrics such as inflation or the official cash rate to protect against one-off spikes in inflation, she argued.
Coalition education spokeswoman Sarah Henderson said she had raised the issue about the timing of indexation in Senate estimates this week and called on the government to reimburse those affected.
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