Over the weekend, the federal government announced it wanted to make big changes to how HECS debts are indexed.
HECS — the Higher Education Contribution Scheme — is the most common form of university student loan in Australia, so these changes could affect millions of people.
Here’s a quick breakdown of what this announcement could mean for your HECS debt.
Notice how we used the word “could” there?
That’s because these changes aren’t law yet — they have to pass parliament after the 2024 budget is released.
What are the changes?
The government wants to change the way we calculate how much existing HECS debts increase each year — otherwise known as indexation.
Currently, HECS debts are being indexed in line with the inflation rate, otherwise known as the Consumer Price Index (CPI).
Some critics of the current scheme say this should be in line with wage increases instead.
And we get this rate from the Wage Price Index (WPI) figures.
Now the federal government wants to calculate HECS indexation based on whichever figure is lower out of CPI and WPI.
What is the HECS indexation rate for 2024?
We don’t know that for sure just yet.
That’s because the new changes mean we have to wait until the WPI numbers come out.
And those aren’t due out until May 15.
The federal government estimates it’ll be 4 per cent — which is 0.7 per cent less than it was originally going to be.
So that’s the figure the government is using to promote these changes.
But it comes with that caveat:
“The actual amount that your … loan will be reduced by is subject to the passage of legislation, and the content of that legislation.”
Wait, didn’t we already know the HECS indexation rate?
Up until the weekend, it was going to be 4.7 per cent.
That’s because, before the proposed changes were announced, indexation was in line with the CPI — which is just another name for the inflation rate.
And those CPI numbers came out last month.
But now that these changes have been announced — or proposed — the rate isn’t confirmed yet.
What was last year’s HECS indexation rate?
It was 7.1 per cent — which was based on CPI data.
That saw HECS debts increase by quite a bit last year.
However, the government wants to backdate the new changes to last year.
That’ll change the indexation rate to 3.2 per cent.
That means that people will get a credit on their HECS debts to make up for the difference from last year.
However, there’s that caveat again — only if the legislation passes parliament.
So will these proposed changes become law?
We’ll know more about this in about a week.
Here’s what national education and parenting reporter Conor Duffy has to say on that:
“The government has a majority in the House of Representatives but needs support from parties like The Greens or the crossbench to get its legislation through the Senate.
“Some of the senators who’ve helped the government pass legislation like [independent] senator David Pocock or Greens senator Mehreen Faruqi have already indicated they’d like to see more ambitious changes.
“They could make their support conditional on further changes to HECS.
“We should have a clearer idea after next week’s budget.”
The federal budget will be released on Tuesday night next week.
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