Federal Education Minister Jason Clare has left the door open for changes to how HECS-HELP debts are paid back, including how indexation is applied to the original debt.
More than 3 million Australians saw their student debt rise with inflation on Thursday as an indexation of 7.1 per cent was applied to the debts.
It is the highest indexation in more than three decades, with average $25,000 HECS-HELP debts rising by $1,775.
The increase has caused major concerns that the increase could have a lifelong impact on the borrowing capacity of those affected and their ability to enter the housing market.
Under the current rules, indexation is applied to the original debt and not the current balance.
Mr Clare said changing indexation to have it apply to the original debt should be considered for reform and he has ordered that it be part of a wider review into higher education.
"If you've got a debt of $20,000, you pay off about $2,000 over the course of the next 11 months, then the ATO index is based on the original $20,000 not the $18,000 — that strikes me as not right," he said.
It comes ahead of an interim report to be handed down next month — which will include immediate recommendations — and a final report at the end of the year.
Independent MP Kylea Tink said a review of Australia's student loan scheme was urgently needed.
"The interest is added to their loan before any payments they made in the previous year are deducted — how can this be fair? To me, it makes no sense," she said.
"Inter-generational equity is one of the biggest challenges of our time: in the tax system, on climate change and on a forward-focused economy.
"The existing scheme also perpetuates gender inequity, with women holding 60 per cent of HELP debts and 58 per cent of the total $74.3 billion debt pool."
Labor rejects freezing student debt
In April, a Senate committee rejected a private member's bill proposed by the federal Greens — and backed by the National Union of Students — to halt indexation on student loans, freezing $74 billion in debt.
It also pushed to raise the minimum repayment threshold for student loans — which currently is at $48,361 — and tie it to the median wage.
While members of Labor and the Coalition rejected the proposal, the committee agreed for student debt to be reviewed at the upcoming Universities Accord.
The Greens argue the federal government has left millions of Australians worse off by not stopping the significant indexation increase.
The education minister said the Greens' proposal would cost the taxpayer $9 billion.
"I don't want people thinking that universities are not worth it," Mr Clare said.
"It has real value — the average income of someone with a university degree is about $100,000. The average income of somebody whose last year of education was year 12 is $70,000 — that's a $30,000 difference every single year."
Greens senator Mehreen Faruqi said it was "heartbreaking" that some people were reconsidering higher education due to the cost of university degrees rising with inflation.
"It's the crushing weight of ballooning student debt that is making people rethink the worth of university education — not the other way around," she said.
"There's absolutely no doubt that the government can afford to make university and TAFE free and wipe student debt, and they can start with abolishing indexation."
"It's just a matter of priorities and, unfortunately, Labor is prioritising hundreds of billions of dollars in tax cuts for the wealthy and dangerous war machines over public education."
