HECS-HELP indexation is set to rise | Image: Unseen Studio

Australia’s Confusing HECS Indexation Increases Explained

By Elliot Nash - Explainer

Published: 26 Apr 2024

While the financial year is still months away, the deadline for HECS-HELP Indexation is looming quickly. On June 1, all unpaid HECS-HELP debts will be subject to increases due to a financial process known as indexation. At the time of writing, the Australian Taxation Office (ATO) has not officially confirmed the indexation figures, however, there is much students and graduates can do to better understand the situation.

Current Student Loan Debt

A staggering 2.95 million individuals in Australia grapple with student loan debt, amounting to a hefty $78 billion in total. On average, each person owes over $26,500, with this figure set to rise due to upcoming inflation adjustments.

Early data suggest a modest 3.35 per cent inflation rate, which could raise the average student debt by nearly $900. This is less than the whopping 7.1 per cent hike seen last year, which added a hefty $1,700 on average to each debt holder. According to ABC News, HECS debts are expected to grow 4.2 to 4.8 per cent this year, the second-highest increase in a decade. For someone with a typical student debt of $26,494, that’s an extra $1,113 to $1,272. But here’s where things get scarier: Student debt rose from $12.4 billion in 2005 to a ridiculous-sounding $78 billion in 2023.

Over the same period, the average HELP debt surged from $10,500 to almost $26,500, with repayment periods extending from an average of seven to nearly ten years. Notably, females bear a larger debt burden across all age groups, especially those in the $20,000-$60,000 range.

HECS-HELP indexation is set to rise | Image: Tim Gouw

The State of HECS Debt in Australia in 2024 – Key Figures:

2.95 million Australians burdened by student loan debt
$78 billion in outstanding student loan debt
Average debt per person: $26,500
Forecasted inflation adjustment: Approximately $900 per debt
Previous year’s inflation surge: 7.1%, adding $1,700 per debt
Total outstanding debt in 2005: $12.4 billion
Total outstanding debt in 2023: Over $78 billion
Average HELP debt in 2005: About $10,500
Average HELP debt in 2023: Almost $26,500
Average repayment period: From about seven to almost ten years
Females carry more debt than males across all age groups
Most common debt range: $20,000-$60,000
ATO collected $4.9 billion from HELP-SFSS loans last financial year
Petroleum resource rent tax generated $2.2 billion in the same period

This is Money podcast host Glen James talks HECS Indexation | Image: Supplied — This is Money podcast host Glen James | Image: Supplied

What is Indexation?

Indexation, in the context of Australian student loans, refers to adjusting the value of loans by changes in the cost of living, primarily measured by the consumer price index (CPI). This adjustment applies to various loan schemes, including the Higher Education Loan Program (HELP), VET Student Loan (VSL), Student Financial Supplement Scheme (SFSS), Student Start-up Loan (SSL), ABSTUDY Student Start-up Loan (ABSTUDY SSL), and Trade Support Loan (TSL).

The process has faced criticism from student representative bodies in recent years, particularly in light of last year’s 7.1 per cent increase. For financial experts like Glen James, the challenges associated with HECS-HELP debt have proven to be all too common. The former financial adviser launched the personal finance podcast This is Money to help young people make informed financial decisions and has followed the indexation discussion closely.

“The Higher Education Loan Program, known most commonly as ‘HELP debt’, can essentially be seen as a tax on education. This debt is paid back by way of the pay as you go (PAYG) withholding payments system when you are paid by your employer, in the same way you pay tax,” James says. “The repayment amount for your debt is based on your salary – increasing as your income increases, with certain thresholds determining when repayments begin and to what percentage rate.”

As the financial expert explains, rather than have interest placed on your HELP debt amount, on 1 June each year, the Australian Taxation Office (ATO) applies an index amount. This indexation is applied to debt more than 11 months old and the amount is based on the last 2 years’ worth of Consumer Price Index (CPI) data. This is to ensure that the indexation is fair and effectively averaged, as inflation data can move slowly. You can also make voluntary repayments with BPAY or credit card. However, these voluntary repayments are not counted towards the compulsory repayments calculated based on your income.

Recent HECS increases

Year	Increase (%)
2022	3.9
2023	7.1
2024	4.2 to 4.8 (Projected)

HELP indexation increases (YoY) 2022-24 | Data: (Australian Taxation Office, n.d.)

Looking back over recent years, HECS indexation has shown a consistent upward trend. Although indexation rates started from a relatively modest 0.6 per cent in 2021, in 2022, the increase was 3.9 per cent, followed by a significant surge of 7.1 per cent in 2023. The predicted rise of 4.2 to 4.8 per cent in 2024 indicates things are only going to get worse.

“The indexation rate this year should be around the 4.5% mark. This means, compared to other debt you may have in your life, it’s a very competitive rate of indexation,” This is Money podcast host Glen James says, “Therefore it’s worth considering paying down your debt if you have met your other financial goals or just wish to clean it up for completeness or financial housekeeping. The trap is that this debt dies with you, so any voluntary payments would be effectively lost and your estate or beneficiaries would not get that benefit like they would if that voluntary repayment was put into your mortgage or into superannuation – if you died prematurely.”

Year	Indexation Rate (%)
2023	7.1
2022	3.9
2021	0.6
2020	1.8
2019	1.8
2018	1.9
2017	1.5
2016	1.5
2015	2.1
2014	2.6
2013	2.0

HELP indexation rate increases (YoY) 2022-24 | Data: (Australian Taxation Office, n.d.)

What Percentage of Income Goes Towards HECS?

As the HECS indexation advances, many are curious about how much of their income goes toward repaying their debts. The proportion varies for Australians across different income levels, from none for those earning below $51,550 to a significant share for higher earners.

How Much Income Goes Toward Repaying HECS?

Income Range	Repayment (%)	Approximate Repayment (AUD)
Below $51,550	0	–
$51,550 – $59,518	1.0	Approximately $515.50 – $595.18
$59,519 – $63,089	2.0	Approximately $1,190.38 – $1,261.78
$63,090 – $66,875	2.5	Approximately $1,577.25 – $1,671.88
$66,876 – $70,888	3.0	Approximately $2,006.28 – $2,126.64
$70,889 – $75,140	3.5	Approximately $2,481.12 – $2,630.90
$75,141 – $79,649	4.0	Approximately $3,005.64 – $3,185.96
$79,650 – $84,429	4.5	Approximately $3,583.25 – $3,797.81
$84,430 – $89,494	5.0	Approximately $4,221.50 – $4,474.70
$89,495 – $94,865	5.5	Approximately $4,922.22 – $5,217.58
$94,866 – $100,557	6.0	Approximately $5,691.96 – $6,033.42
$100,558 – $106,590	6.5	Approximately $6,543.97 – $6,927.84
$106,591 – $112,985	7.0	Approximately $7,478.37 – $7,908.95
$112,986 – $119,764	7.5	Approximately $8,515.95 – $8,982.30
$119,765 – $126,950	8.0	Approximately $9,669.20 – $10,156.00
$126,951 – $134,568	8.5	Approximately $10,951.58 – $11,440.28
$134,569 – $142,642	9.0	Approximately $12,376.21 – $13,037.78
$142,643 – $151,200	9.5	Approximately $13,955.57 – $14,364.00
$151,201 and above	10.0	Above $15,120.10

Percentage of income allocated to HELP repayments | Data: (Australian Taxation Office, n.d.)

These percentages represent mandatory payments ranging from 1% to 10% of income. Additionally, voluntary repayments can be made at any time. With indexation based on the consumer price index (CPI) each year on June 1, there’s growing pressure for reforms amidst the current cost-of-living challenges.

There are strategies to pay off HECS debt faster | Image: Van Tay Media

Strategies for Paying off HECS Debt Faster

For many Australians, the dream of paying off all student loans is a while away, due in part to the longevity of the payment cycle. As James points out, it’s not always feasible to make large voluntary repayments to your HECS-HELP debt as unforeseen issues can undoubtedly arise.

“I generally encourage listeners to let HELP debt simmer away in the background, as they aren’t impacted by high-interest rates like some debts are,” James says. “If you only had a small amount of HELP debt remaining and you had the means to pay it off in full with your own voluntary repayment, it could be worthwhile to do so just to wrap it up. But for most people, allowing your compulsory repayments to carry out over time is the most appealing option as other financial goals are more pressing.”

If you’re feeling the weight of a hefty HECS debt or wondering how to accelerate your repayment, there are a few practical tips to help you manage your loan more effectively and minimise the impact of HECS indexation down the line.

1. Make Voluntary Payments

Looking to sidestep HECS indexation? Consider making extra payments whenever possible. While mandatory repayments kick in once you earn above the $51,550 threshold, you can make voluntary contributions through the myGov portal using BPAY. Utilise part of your tax refund to chip away at your loan without sacrificing your day-to-day expenses. Keep track of income thresholds, as they may change annually.

2. Increase Withholding Tax

Requesting an increase in withholding tax from your employer can allocate more funds toward your HECS-HELP repayments, helping you reduce your balance faster.

3. Explore Salary Sacrifice

While commonly associated with superannuation, salary sacrifice can also be used to pay off HECS-HELP debt. Talk to your employer about diverting a portion of your pre-tax salary toward your student loan each pay cycle. However, before committing, consider fringe benefits and consult with tax and financial advisors to understand the potential impacts on your financial situation.

Calls for Change

An online petition led by independent MP Monique Ryan is pushing for changes to how HECS debts are adjusted. With over 230,000 signatures, it reflects a growing demand for reform. Also, various MPs from different parties are raising the issue in the federal parliament.

Teal MPs at the federal level recently called for adjustments to how higher education loans are increased with inflation, arguing the current system isn’t fair. They suggest linking increases in HELP debts to either consumer price inflation or wage growth, whichever is lower, to prevent people from falling behind financially.

This proposal mirrors the Australian Universities Accord’s final report, released last month, which recommended a similar approach. Education Minister Jason Clare has shown openness to reconsidering the current indexing method. According to James, the most important factor is that the system remains public, rather than privatised.

“I think, in the first instance, it’s great that this hasn’t been privatised as that would only lead to actual disaster,” he says. “If you don’t believe me, have a little Google for student loans in the USA.

What Should Be Done?

As media reports highlight the increasing stress students and graduates face due to rising debts, the question arises: what should be done? Well, if we look at The Accord’s report their suggestion is tying indexation to either CPI or the Wage Price Index (WPI), which tracks wage increases.

While the government reviews this recommendation, exploring alternatives is crucial. While the Wage Price Index might have tempered indexation lately, it generally exceeds CPI. In response, Andrew Norton Professor in the Practice of Higher Education Policy, Australian National University advocated for a fixed maximum indexation rate, arguing that it could offer more stability, protecting HELP borrowers from sudden increases in their student debt.

“The accord’s proposed “lower-of inflation or wages” indexation policy can deliver savings to student debtors in specific circumstances,” Professor Norton said. “These occurred recently, but are already passing into history. A sustained period of simultaneous high inflation and high wage increases seems unlikely right now but happened in the 1970s. If it happened again student debt indexation under an inflation-wages alternative policy could remain high for years.”

The challenges posed by escalating HECS-HELP debts demand urgent attention and reform. Tying indexation to either CPI or WPI, as recommended by the Australian Universities Accord, represents a promising step towards fairer and more sustainable student loan policies. However, this is just the beginning.

“It’s a bigger discussion around governments wanting to put tax dollars back into education. Potentially, it could be a compromise to allow the debt not to index for the first three years or so, giving people the chance to get their careers started,” James explains.

“It (the indexation system) is not perfect but it’s close-ish. Potentially, the government needs to just apply a flat rate of 3% as some type of target inflation amount, but if we were in an environment like the last 10 years, that would not have pleased people,” he continues. “Alternatively, the current formula and then cap it at an x% or whatever is lower than the automatic inflation number. This will require an amount from the government’s budget. We know it hasn’t had much attention as there has been no chat on any real policy change until now. The best way forward is to speak with your local federal member.”

Advocacy and action from students, graduates, and policymakers alike are essential to ensure that Australia’s higher education financing system remains accessible and equitable for all. If you’re concerned about the rising HECS debts and the financial strain on students and graduates, consider signing petitions advocating for fairer indexing methods or contacting your representatives to express your views on student loan reform.