Millions of Australians with student HECS-HELP loans will see their debt increase tomorrow when a hefty indexation is applied to the outstanding amount.
Despite outcry from those affected and an attempt by the Greens to have debts frozen, it was confirmed in April the rise will go ahead as usual.
The move will impact the more than three million Australians who have an outstanding student loan. If you're one of them, this is what it means for you.
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How much are HECS-HELP debts rising this year?
Student debt will be increased by 7.1 per cent – the same figure as the consumer price index (CPI) or inflation was for March 2023.
The rise applies to any HELP debts that are more than 11 months old – indexation isn't applied to any student loans in their first 11 months.
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So what does that actually mean for me?
There are a few implications of indexation. The first, and most obvious, is that the amount you owe the Australian Tax Office (ATO) will increase by 7.1 per cent.
So, for example, someone with the average national student debt of $24,770.75 will owe the ATO an extra $1758.72.
However, because mandatory student loan repayments are calculated based on how much you earn, not how much debt you have, the amount you're required to pay each week or month won't go up unless your salary has.
The other thing that will change with indexation are the various mandatory repayment thresholds that are used to calculate how much of your wage is taken to pay back your debt.
These are the thresholds for the 2022-23 financial year, with someone's "repayment income" on the left and the percentage of that income that has to be allocated to paying back student loans on the right.
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| Repayment threshold | Repayment rate |
|---|---|
| Below $48,361 | 0.0% |
| $48,361 - $55,836 | 1.0% |
| $55,837 - $59,186 | 2.0% |
| $59,187 - $62,738 | 2.5% |
| $62,739 - $66,502 | 3.0% |
| $66,503 - $70,492 | 3.5% |
| $70,493 - $74,722 | 4.0% |
| $74,723 - $79,206 | 4.5% |
| $79,207 - $83,958 | 5.0% |
| $83,959 - $88,996 | 5.5% |
| $88,997 - $94,336 | 6.0% |
| $94,337 - $99,996 | 6.5% |
| $99,997 - $105,996 | 7.0% |
| $105,997 - $112,355 | 7.5% |
| $112,356 - $119,097 | 8.0% |
| $119,098 - $126,243 | 8.5% |
| $126,244 - $133,818 | 9.0% |
| $133,819 - $141,847 | 9.5% |
| $141,848 and above | 10.0% |
Note that repayment income is different to your raw salary or take-home pay - it's your taxable income plus any investment loss (including rental losses), reportable fringe benefits amounts, reportable super contributions and exempt foreign employment income.
Why are HECS-HELP debts going up?
Indexation is applied every year on June 1 to student debts – it's not just a one-off this year.
Unlike other loans, HECS-HELP debts are interest-free. However, in order to ensure people are returning what's considered to be the true value of the loan to the federal government, they're indexed in line with inflation.
"This indexation that happens around the middle of the year every year happens regardless of who's in office or all the other circumstances, and like a lot of other government programs, including payments, it's indexed," Treasurer Jim Chalmers explained in April.
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"The important thing to remember about student debt is that the repayments go up when your wages go up, when your salary goes up. That's what determines how much you pay back.
"This is an ordinary indexation, and in terms of repayments and pressure on people, the repayments go up when your salary goes up, that's how the system works."
What's different this year is how high CPI is at the moment – the 7.1 per cent rise is the steepest indexation rise since 8 per cent in 1990.
Last year, for example, indexation was 3.9 per cent, and you then have to go back to 2015 to find the previous time it was above 2 per cent.
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The information provided on this website is general in nature only and does not constitute personal financial advice. The information has been prepared without taking into account your personal objectives, financial situation or needs. Before acting on any information on this website you should consider the appropriateness of the information having regard to your objectives, financial situation and needs.
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