Australian Government Wiping Around $3 Billion in Student Debt

Three million Australians will see their university student debt reduced by a collective $3 billion. Andreas Rentz/Getty Images

More than three million Australians will have their student debt cut by the Albanese government as they wipe around $3 billion (US$2 billion) in student debt.

The cut was announced by Education Minister Jason Clare and Skills and Training Minister Brendan O'Connor on May 5.

They said the cut was intended to provide significant relief to students while maintaining the value of the HELP (Higher Education Loan Program) and other loan systems.

An individual with a HELP debt of $26,500 (US$17,000) will have around $1,200 (US$800) wiped from their outstanding HELP loans in 2024 if the legislation passes.

Australians with HELP debt can estimate how much they will benefit from the change given their specific debt using the HELP indexation credit estimator.

How the Relief Will Work

The Australian Labor government will cut student debt by capping the HELP indexation rate to the lower of the Consumer Price Index (CPI) or the Wage Price Index (WPI) effective from June 1, 2023.

Currently, while a student is not charged interest on their HELP loan, it is “indexed” to the inflation rate, or CPI, to ensure the government does not lose value on the repayments.

“The Universities Accord recommended indexing HELP loans to whatever is lower out of CPI and WPI,” Mr. Clare said.

The University Accord is the Australian government’s commitment to drive reform in the tertiary system.

“We are doing this, and going further,“ Mr. Clare said. ”We will backdate this reform to last year.”

He said that this will wipe out what happened in 2023 and ensure that it “never happens again.”

The change will be backdated for HELP, VET (Vocational Education and Training) student loan, Australian apprenticeship support loan, and other support student loan accounts existing on June 1, 2023.

The relief will address the significant increase in Australian student loans in 2023 when inflation pushed the CPI to 7.1 percent, a substantial increase from 2022’s indexation rate of 3.9 percent. In comparison, the WPI in 2023 was 3.2 percent.

Although it should be noted that from 2013 to 2021 the CPI did not exceed 2.6 percent, this change will prevent future growth in student loan debt due to outpacing wages.

The cut to student debt is intended to provide significant relief to students. JGI/Jamie Grill/Getty Images

Addressing Inflation, Cost-of-Living Pressures

The joint release said that this month’s upcoming budget will try to ease the cost-of-living pressures on Australians and fight inflation as the foundations are laid for future economic growth.

The minister for skills and training said this cut in student debt continues the government’s work to reduce and remove financial barriers to education and training.

“VET Student Loans and Apprenticeship Support Loans support many Australians to get the skills they need for secure and rewarding careers,” Mr. O'Connor said.

He said that these changes make sure that help is provided on a fairer basis.

“By backdating this reform to last year, we’re making sure that those with student loans affected by last year’s jump in indexation get this important cost-of-living relief,” he said.

He added that this change to the HELP system is part of the first stage of reforms that the government will implement in response to the Universities Accord.

Opposition to the Change

Ben Phillips, associate professor at Australian National Univerity’s Centre for Social Research and Methods, said that the cuts to HELP (formerly HECS) indexation won’t provide cost-of-living relief in the present.

“Labor’s cut to HECS indexation won’t provide cost of living relief now but will take a few months off loan repayment times for mid/high income grads in the future,” Prof. Phillips said in a post on X.

He said that HECS is a progressive tax almost exclusively paid by the top half of the income distribution.

“Lowering HECS requires more taxes or less government spending elsewhere. Also there is almost no link between HECS and uni participation.”

A student walks to class at Rice University in Houston, Texas, on Aug. 29, 2022. Brandon Bell/Getty Images

US Government Addresses Student Debt

The move by the Australian government comes after the Biden administration in the United States approved almost US$150 billion (A$230 billion) of student debt relief to four million Americans across numerous executive actions.

However, such aid has been somewhat divisive in the United States. In 2023, the Supreme Court blocked the Biden-Harris Administration’s one-time student debt relief program.

A 2022 survey by the Economist/YouGov (pdf) found that 51 percent supported the government cancelling up to US$10,000 in federal student loans, while 40 percent were opposed.

The survey also found that 55 percent supported capping monthly payments for undergraduate loans at 5 percent of a borrower’s monthly income, with 20 percent opposed.

Despite the Supreme Court’s decision, President Joe Biden announced new plans on April 8 to provide over 30 million Americans with student debt relief.

However, some Americans, such as House Budget Committee Chairman Jodey Arrington, are opposed to President Biden’s suggested 2024 loan programs.

Mr. Arrington said President Biden is pushing an unconstitutional student loan process to buy votes.

“In reality, his plan will shift the responsibility of paying for loans owed by high-income earners who freely incurred them onto the backs of all taxpayers, many of whom do not even have a college degree,” he said in April.

Mr. Arrington said Biden’s administration is set on circumventing the Supreme Court, defying Congress, and saddling the United States with more debt.