HELPless – time to update the HECS-HELP indexation formula
Several members of the House crossbench this afternoon met Education Minister Jason Clare to express their concerns about the impact of tomorrow’s 7.1 percent indexation trigger for HECS/HELP debt.
While the Minister would not commit to an immediate change to the means of calculating the index, he did tell the members the HECS/HELP system would be reviewed as part of the Australian Universities Accord process he has commissioned.
This will include an assessment of the now four decade-old student loans system by its architect, Professor Bruce Chapman.
The crossbenchers expressed their collective concern that the size of tomorrow’s indexation increase means that millions of young Australians are being slugged with an unprecedented hit to their student debt; even worse it could have an impact on their ongoing quality of life.
Because the March quarter Consumer Price Index is used to calculate the annual indexation of HECS-Help debt, this year’s figure of 7.1 percent will add to the debt load of millions of Australians already wrestling with the high cost of living and a housing crisis.
With wages lagging behind the current high level of inflation HECS/HELP debtors on the average debt of $22,636 will confront an increase of $1,584.52, according to research from the Parliamentary Library.
The data shows that women are disproportionately affected by rising university costs, and that the current indexation system further exacerbates the gender pay gap.
Because lending institutions take HECS-HELP debt into account when making decisions about the ability of clients to service loans, the latest increase means some young Australians will see their borrowing capacity reduced and with it their ability to buy a first home.
The government has made it clear it will not cap debts as proposed by the Greens and others.
But there are a range of immediate options that the government could take to ease the pain to a degree:
- Determine indexation based on either the CPI or the more stable Wage Price Index, whichever is lower at the time (as occurs in the UK)
- Tie indexation to the RBA’s trimmed or weighted mean which more accurately calculates underlying inflation which would effectively compensate for the current and future burden of higher cost of living pressures
- Delay the calculation of indexation of the debt until after the end of any tax year (ie November) to ensure the charge is calculated on the true amount outstanding
After being set up in the 1980s, HELP is no longer fit for purpose and is overdue for independent review.
Tertiary education is more than a cost; it is an investment in our future. A better educated workforce means greater productivity and greater prosperity for all.
