That ICPA (Aust) advocate to the Minister for Education and the Federal Treasurer to change the timing of debt indexation for study and training support loans.
The indexation of Higher Education Loans Program (HELP, or also known as HECS) and other study and training support loan debts has long been an issue for graduates. Although these loans have been promoted in the past as ‘interest free’, the loan has always had indexation applied at the rate of the current CPI (Consumer Price Index) or WPI (Wages Price Index) (whichever is lower) at the time of indexation, 1 June. A recommendation from the Australian Universities Accord (2024) is to change the timing of indexation. Once a graduate earns above the compulsory repayment threshold (currently $54,435 in 2024-25), repayments are deducted from wages through the tax system and held by the government until the graduate lodges their tax return when the funds are then applied to reduce the debt. The total amount deducted from wages over the financial year is not applied to the loan until after the graduate lodges their tax return. The unjust issue is that indexation is applied to the debt on 1 June, which is before the repayments have been applied to the loan, disregarding the fact that the graduate has had repayments deducted from their wages over the previous 11 months. Not like a bank loan which applies the repayments immediately.
We understand that this is a complex system for the tax office to administer, but we feel that the timing of the indexation of the debt is unfair. Applying indexation after the lump sum repayment has been applied to the debt would be far more equitable.
This could be remedied by indexation being applied 1 November each year after the Individual Tax Return due date of 31 October. If this indexation date was adopted, any repayments deducted from wages during the previous tax year would be included in the balance of the student support loan debt before indexation is calculated and applied.
We are aware that the recently elected Labor Government is proposing a 20% reduction to all study and training support loans that exist on 1 June 2025, before indexation is applied. This will be retrospectively calculated and applied after the proposed legislation passes Parliament in July. The Government has also proposed raising the minimum repayment threshold to $67,000 in 2025-26, with compulsory repayments only being calculated on the income above the new $67,000 threshold instead of the total annual income. While these modifications are welcome, they do not change the fact that the timing of indexation is inherently unfair. We would argue that the cost of some of these measures would have been better spent by changing the indexation date.
