Education Opinion

HECS indexation increasing unaffordable student debt

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Treasurer Jim Chalmers (image via YouTube)

The recent indexation of HECS fees at 7.1% is adding to students' debt at a time of a cost of living crisis for young people, writes Rowan Bosman.

*Also listen to the audio version of this article on Spotify HERE.

HECS REFERS TO the Higher Education Contribution Scheme, where the Government pays your university fees until you start earning enough money to pay the loan back.

How HECS works

When you earn $51,550 or more per year, you are required to pay back the HECS loan out of your fortnightly or monthly paycheck.

As you earn more you pay back more. That is fairly standard. The debt increases through indexation to account for inflation.

Instead of the debt accruing with an interest percentage like what happens with credit card debt, the debt is indexed in line with CPI (consumer price index).

This is a fancy way of saying your debt goes up based on what it would be worth in the dollar amount today. In 2020 and previous years, indexation was sitting around 1.8%- 2% and then a jump to 3.9% in 2022 and in 2023, a whopping 7.1%.

HECS system

When you log onto the Australian Taxation Office (ATO) website through the MyGov portal you scroll down to view your total HECS debt.

Now, your employer pays a percentage of your income to the Government to pay the debt off every paycheck. This reduces your overall debt amount.

The Government has this money in a holding account and is only accounted for at the end of the financial year.

The one problem with this is that you cannot view the amount your debt has been reduced on the ATO website. You cannot see your debt being reduced at all.

The ATO claims that the reason it doesn’t show the repayments is that it waits until the end of the financial year to see if you have contributed enough in terms of compulsory payments.

The problem is, even if you do owe more or less the ATO is not transparent in showing people's actual debt figures rather than relying on the murkiness provided by ill-informed call centre staff.


Your HECS debt is indexed on 1 June every year before the end of the financial year. Really, it should be indexed after the start of the new financial year on 1 July.

The financial year inflation calculator is updated on the day after each June quarter CPI release, hence why the debt is indexed on this day.  

The problem with the indexation system is that the ATO hasn’t calculated the repayments your employer has made throughout the year, hence they are applying indexation to your debt amount from the start of the financial year.

This means that a larger dollar amount will be indexed causing you to end up with more debt added on.

If the ATO wants to index a large portion of your debt on 1 June, that is okay. What it should be doing is crediting the consumer the difference between the additional debt that was added to your debt by indexing it on 1 June, not 1 July.*

If you have a system so rigid at least give the consumer the benefit of the doubt.  

It would be helpful for the consumer for the ATO to be including the payments you have already made to reduce the debt for that financial year. 

If you had a credit card payment and you pay what you owe to the bank you can see this payment in real-time when you make those payments. Why is it not the same with this debt?

This is one reason why your debt is going to take longer to pay off.  

This may not have been the biggest concern when indexation was at 2% but at the current rate of 7.1% it really puts financial strain on individuals.

Let's do the math

At the start of the 2022-2023 financial year I had a debt of $37,374.

This was indexed on 1 June 2023 at 7.1% — $2,653.50 (debt increased by).

My employer paid $5,621 in HECS for the 2022-2023 financial year.

If I had to calculate the amount of HECS I have paid from 1 June 2023, which would be $5,271 (this figure is minus one month of HECS I paid in July) times 7.1% my debt would have increased by $2,289.50.

So if we minus how much my debt actually increased by $2,653.50 and how much it should have increased by $2,289.50, the difference is $364.

Essentially that's $364 that has been added to my debt.

It is not the largest dollar amount but think of it like this.

The average HECS debt in Australia is $24,700. The average salary for new graduates is $68,000. On that salary, you will pay 3.5% on your HECS which is $2,380 per year.

If the Government calculates an indexation of 7.1% on $24,700, that is a $1,754 increase in debt.

If it actually calculated $24,700 (debt) minus $2,380 (HECS paid), the remaining debt of $22,320 must be indexed at 7.1%, resulting in a further $1,584 payment.

So take $1,754 minus $1,584, which equals $170. This is the difference that the Australian Government has added to your debt intentionally.

Now if we calculate how many students in Australia roughly have a HECS debt, the number is 2.9 million.

And $170 (the increase in debt from government indexation) times 2.9 million (individuals with debt) equals $493,000,000 in extra amounts added to the HECS debts. These are amounts that consumers will have to pay back.  

The complex nature of the HECS system does not aid in assisting individuals to have any positive feelings in regard to their debt. If it was simplified and explained accordingly, this system may be significantly improved.*

Editor's note: This article has been amended from its original version (denoted by *) on 21 August 2023.

*This article is also available on audio here:

Rowan Bosman is a social worker who writes about social justice and government policy.

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