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This is an expert opinion piece written by Associate Professor Alfredo Paloyo. The tenor of the article has been edited by The Stand with the consent of Associate Professor Paloyo.

Unpacking the proposal 

The HECS–HELP system is already one of the most progressive in the world. Repayments are only required when individuals earn above a generous income threshold. Providing this kind of relief will disproportionately benefit higher-income Australians while shifting the cost to those in the bottom half of the income distribution. 

In this scenario, poorer taxpayers will subsidise a benefit for individuals who are already on a pathway to higher earnings. In the long run, the government will have to make up for this $3 billion shortfall by raising taxes or cutting crucial services that lower-income Australians rely on. 

The politicians proposing these reforms are ignoring the reality that higher-income graduates will already repay their student loans faster because of their elevated earnings potential. While they may receive a short-term financial boost from the lowered indexation rate, the long-term burden will fall on taxpayers, potentially leading to cuts in social services and infrastructure that benefit all Australians. 

A real solution? 

The proponents of these reforms argue that capping indexation will ease the financial burden on graduates. Even under the current system, the average time to repay is about . While managing student loans can be challenging, the HECS–HELP system offers a flexible repayment period and requires payments only after reaching a specific income threshold, providing a more manageable path compared to other long-term financial commitments. 

Moreover, capping indexation at the lower of CPI or WPI will not result in meaningful savings. Historically, the WPI has only been lower than the CPI four times this century, and only once would it have reduced the indexation rate below the historical average of 2.5%. So, what’s the point of this supposedly radical reform? 

This proposal ignores the fundamental reasons for indexation: ensuring that the value of the debt remains in line with inflation. Tying it to the WPI will only distort this crucial economic metric and lead to more complications down the road. And for those claiming it will bring significant savings, think again. The supposed relief amounts to a few months off the total repayment period for an average graduate, which is hardly a lifeline for those with student debt. 

Better alternatives exist 

As long as inflation remains unpredictable, this new system will fail to deliver the certainty that students and taxpayers deserve. Uncertainty over future indexation rates will persist, and the government will face increasing pressure to make further concessions, inching closer to policies that completely undermine the integrity of the HECS–HELP system. Indeed, with the excessive expenditures over several state and federal budgets to date, coupled with a timid monetary stance from the Reserve Bank of Australia, we can expect both price indices to remain elevated in the near term. 

If the government truly wanted to alleviate financial obstacles to higher education, they should consider more targeted measures that address systemic issues. For instance, increasing Youth Allowance would directly benefit students and low-income earners, providing support to those who genuinely need it. 

Improving inadequate JobSeeker unemployment benefits could also be an impactful step. Australia lags other OECD nations in providing robust social safety nets, and enhancing this program could reduce the financial stress on recent graduates who struggle to find suitable employment. 

Alternatively, a cap on indexation tied to the upper bound of the inflation target, at three per cent, would offer more certainty and fairness than the arbitrary CPI–WPI comparison. A three per cent cap aligns with the central bank’s inflation target and provides a reasonable compromise between preserving the value of student loans and protecting graduates from runaway inflation. It may even incentivise the RBA to take decisive action on inflation, addressing the underlying issue driving higher indexation rates. 

Preserving the integrity of HECS–HELP 

The HECS–HELP system remains a well-structured, progressive program, and attempts to fix what isn’t broken will only weaken the framework that has made Australia one of the most educated nations in the world. Despite recent inflationary pressures, the system remains fundamentally sound. Any reforms should focus on long-term economic stability rather than catering to those looking for immediate relief at the expense of broader societal progress. If we must tinker, then begin with the indexation date of June 1, which does not consider earlier repayments in the year. 

While the government’s proposal may offer some temporary relief to recent graduates, it fails to deliver meaningful benefits or address the root causes of student debt concerns. Instead, we need a policy framework that prioritises a fair balance between preserving the value of the debt and ensuring that students have the support they need to succeed. We cannot let short-term political gain derail a system that, despite its challenges, remains the envy of many other nations. 

Let’s defend the integrity of the HECS–HELP system and push for solutions that address economic inequality and support higher education in a sustainable, equitable manner. 

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