The Australian Universities Accord, released on the weekend, is demanding lenders stop seeing HECS-HELP debt in the same way as credit card or personal loans in assessing mortgage eligibility.

It recommends banks review their lending practices “to ensure HELP loans are not like other types of loans and are not treated in a way that unduly limits people’s borrowing capacity for loans”.

The report argues unlike other debt, there is no obligation to repay HELP debts unless someone earns sufficient income.

The Accord also calls for student debt to be indexed to the lower of the Wage Price Index or Consumer Price Index inflation, introducing some link to wages.

Under the current system, HECS-HELP debt is indexed annually according to an annual inflation figure which saw loan amounts increase by 7.1% on 1 June.

It was a significant jump after decades of low inflation.

According to the latest official data, annual wages growth was 4.2% over 2023, outstripping the CPI figure of 4.1% for the first time in almost three years.

HECS-HELP debt is on track to rise around 5% this June.

Call to cap student debt increases

The Accord is also recommending the indexation be capped, saying the current system has caused “concern for those whose debts are increasing faster than repayments”.

“A cap will ensure the indexation of HELP debs no longer outstrips the growth in wages and the servicing capacity of debtors does not go backwards overall,” it said.

The Accord also calls on the Australian Taxation Office to ensure any repayments made during the year are deducted from the balance of a student’s outstanding debt before it is indexed in June each year.

Earlier this month, the ATO told Senate Estimates changing the timeline of indexation would require new software and be costly and complex.

Students restricting income

The review found some low-income earners are deliberately keeping their wages below the student loan repayment threshold.

Graduates have to start repaying their debt once they earn above $51,550 a year, just above the minimum wage.

The Accord warns this can create a disincentive to earn higher income, particularly for those who already face barriers to entering the workforce, such as sole parents and those on income support.

The review found this was particularly pronounced for women with HELP debts who are more likely to be on lower incomes, particularly due to part-time work.

Under current rules, graduates reaching the threshold pay 1% of their income towards student debt through the tax system.

Repayments rise along with income, increasing to 10% of a $151, 205 salary.

The document says high HECS-HELP debt “risks deterring some people from seeking higher education at exactly the same time we need growth in participation”.

Revamp of fee system 

The report also calls for the scrapping of the Jobs-Ready Graduates Program, a fee system introduced by the Morrison coalition government in 2021 as a way of encouraging students to choose courses in skill shortage areas.

The program saw students in the humanities, arts, or communication taking on bigger student loans while the cost of doing nursing and teaching degrees was dropped.

The Accord found only 1.5% of students changed their courses as a result and left some students facing extremely high student debts that “do not reflect their future earnings potential”.

Currently, almost three million tertiary graduates owe the government $78 billion dollars, an average debt of $26,000 for each student.

Federal Education Minister Jason Clare said a “fairer and simpler” shake-up of the HECS-HELP system would see graduates earning $75,000 pay back around $1,000 less a year.

However, he declined to commit to the changes, saying the government would cost and prioritise what measures to take first and respond “in a few months”.

The report also calls for a doubling of university places, setting an 80% tertiary attainment target by 2050.

Image by Minguelangel Miquelena on Unsplash

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