Starting from June 1, 2023, students studying in Australia can expect an increase in the cost of education. The indexation on student loans is set to rise from the current level of 3.9% to 7.1%. According to Financial Express (FE), this change will primarily impact students with HELP loans, which are part of the Higher Education Loan Program.
HELP loans are considered one of the most affordable forms of debt in Australia since they do not accrue any interest. However, they are subject to annual adjustments based on the cost of living index. Consequently, if the cost of living index or inflation rises, students’ outstanding debts also increase.
The purpose of indexation is to maintain the real value of the loan by aligning it with the increases in the cost of living, as determined by the consumer price index (CPI). The specific indexation figure is calculated annually following the announcement of the March CPI and is added to the student’s debt on June 1 of each year.
Indian students who have taken education loans from Indian banks to study in Australia may not need to be concerned about the impact of indexation on their debts. According to Amit Singh, the Founder of UniCreds, an extended arm of UniScholars, the indexation’s effect applies only to students who have opted for HECS-HELP.
HECS-HELP is a government program specifically designed for students enrolled in Commonwealth Supported Places, where the Australian government provides partial financing for their education. As a result, students who have obtained loans from Indian banks may not have to worry about facing increased debt due to indexation.
An increase in the inflation index signifies a rise in the cost of living, which requires individuals to allocate a higher amount of money to cover their expenses. According to Amit Singh, it is advisable for Indian students to consider inflation when planning to move to any country, including Australia. He highlights that Australia has experienced a decrease in the inflation rate from 7.8% to 7% in 2022, making it a more appealing option for students.
In March 2023, a new education agreement between India and Australia was established. Known as the Mechanism for the Mutual Recognition of Qualifications, this agreement represents India’s most comprehensive education agreement of its kind with another country. Under the Mechanism, Indian students who obtain a degree from an Australian university will have their degree recognised in India, enabling them to pursue further higher education in India.
Singh asserts that Australia has positioned itself as a highly desirable destination for higher education due to the worldwide reputation of its universities and recent immigration changes that allow students to seek employment while studying. As a result, Australia is expected to remain a top preference for Indian students aspiring to pursue advanced degrees overseas.
MPs are reportedly calling on the federal government to alleviate the increasing burden of student debt in the upcoming budget, as per a report from The Guardian on May 8. Despite projections indicating that eliminating indexation could have a negative impact of up to $1.3 billion on the budget, these lawmakers are advocating for measures to address the growing student debt crisis.
Independent MP Zoe Daniel has suggested that the burden of HELP indexation could be eased through modest adjustments, such as linking it to the wage price index (WPI) when it is lower than the consumer price index (CPI). This approach aims to address the issue of high inflation lagging behind wages and offers a potential solution to smooth the impact of indexation.
According to forecasts from the parliamentary library, while CPI growth is expected to surpass wage growth in the short term, there is a projected reversal of this trend in the medium to long term.
Provided to Guardian Australia, the advice states that implementing this approach would reduce the significant levels of indexation associated with periods of declining real wages. Essentially, it would place a cap on indexation at the level of wage growth during periods of high inflation.
In addition to her earlier proposal, Zoe Daniel suggested implementing a cap on indexation during periods of volatility and applying indexation after compulsory repayments on student loans have been made.
Modelling provided to Daniel by the parliamentary library indicated that graduates could potentially save hundreds of dollars annually in their final loan repayments if the system prioritised repayments before applying indexation. This approach would result in greater savings for students with larger debts.
According to Daniel, the suggested measures are temporary solutions to address the issues with the current Higher Education Loan Program (HELP). She emphasised the need for an independent review of HELP, as it was established in the 1980s and is no longer considered suitable for its intended purpose.
Meanwhile, the Greens have been advocating for the complete removal of indexation on student loans and an increase in the minimum repayment threshold from $48,361 to the median wage of $64,399. However, their proposed bill, presented by Senator Mehreen Faruqi, was recently rejected by the committee due to concerns regarding its financial implications on the budget.
According to costings provided by the Parliamentary Budget Office to Guardian Australia, the proposal put forth by Senator Mehreen Faruqi would result in a decrease in the underlying cash balance ranging from $462 million to $1.3 billion. The costings cited uncertainty surrounding factors such as student loan growth, debtors’ repayments, and economic volatility as reasons for the potential impact on the budget.
According to Catriona Jackson, the Chief Executive of Universities Australia, the proposed changes by Senator Mehreen Faruqi could divert funds from essential services. She emphasised the need for careful assessment of any changes to the Higher Education Loan Program (HELP) to ensure they align with the policy’s goal of removing barriers to a university education.
Universities Australia has requested the federal government to include students in any cost-of-living relief measures included in the budget and to increase research spending.
Meanwhile, the Shadow Minister for Education, Sarah Henderson, attributed student debt to what she described as “Labor’s failure to combat sky-high inflation.” However, she fell short of calling for the abolition of indexation.
Shadow Minister for Education Sarah Henderson criticised the Australian Labor Party for their alleged failure to address high inflation, which she blames for student debt. However, she did not explicitly call for the abolition of indexation.
Henderson expressed her concern over the Australian Taxation Office’s announcement that student loans would reach their highest levels in 30 years. She criticised Education Minister Jason Clare for his perceived lack of action and called for him to take more proactive measures.
In response, Clare acknowledged the issue of inflation and revealed that he has instructed the universities’ accord expert panel to provide recommendations on the future of the higher education system, including an examination of student debt. The panel is expected to release an interim report by the end of June and a final report in December.
Clare emphasised that HELP loans, which are part of the Higher Education Loan Program, do not need to be repaid until the borrower reaches the income repayment threshold. He stated that the loan repayments only increase in proportion to the individual’s salary, and the system is designed to ensure individuals pay what they can afford.
