By Abbey Wheeler
In good news for tertiary students, legislation has recently passed which changes the way student loans are indexed.
HECS (Higher Education Contribution Scheme) loans are interest-free, however, each year they are indexed, which means the value of the loan is adjusted to reflect changes in living costs: essentially, your loan increases over time.
Previously, HECS loans were indexed according to the inflation rate, known as the Consumer Price Index (CPI).
The new laws mean HECS will now be indexed according to either the CPI (inflation rate) OR the Wage Price Index (WPI): whichever is lower.
The idea behind the new system is to prevent indexation increasing faster than wage growth.
The new rates will be back-dated for the previous two years. This means last year’s unusually high indexation rate (7.1%) will be reduced to 3.2% and the 2024 rate will be decreased by 0.7%.
For students still paying off their HECS loans, the changes will be automatically applied as a credit on the amount still owing.
For those who have completely paid off their HECS loans after indexation was applied last year, a refund will be automatically issued by the Australian Taxation Office.
The changes will impact all forms of government student loans, including HECS, Apprenticeship Support and Vocational Education and Training Loans.
Although these changes are certainly welcome news, wiping about $3 billion in student debt, historically, the WPI has only been lower than the CPI four times since 2000.
Some have argued that the new indexation system has the potential to be problematic in the future, if both the CPI and WPI become exceptionally high. Experts have suggested a fixed maximum indexation rate could be a better solution.
For more information, check out this article by the ABC.