The architect of the HECS-HELP system says misinformation is creating anxiety in the community about the effect of inflation on student debt.
Emeritus Professor Bruce Chapman has moved to reassure those nervous about the level of indexation that will be applied to their HECS-HELP debts in June.
"I think that it's unfortunate that it hasn't been a bit more clear in the public debate," Professor Chapman told ABC News Daily.
"The issue is one of fear and misunderstanding."
The discussion about indexation on student loans continued after a Greens bill designed to pause indexation and increase the repayment threshold was rejected by a Senate committee earlier this week.
What is HECS-HELP debts and indexation?
HECS-HELP is a loan scheme to assist Australian university students pay for their degrees.
Professor Chapman worked with the Hawke government in the late 1980s to design the HECS scheme, in which the government lends students money to cover their contribution to the cost of a degree.
The government pays for the course up-front, and graduates then repay the loan once their salary reaches a certain threshold. At the moment that is $47,014.
Once a person with a HELP debt has earnings exceeding that amount, they pay 1 per cent of their income to repay the loan.
The proportion of income taken to repay the loan increases as a graduate's income increases up to 10 per cent of annual income once their salary reaches $141,848.
HECS-HELP debts are interest-free but the debt is indexed to keep up with inflation, so indexation adds to the overall amount that has to be repaid each year.
The rate of indexation this year is expected to be about 7 per cent, up from 3.9 per cent last year and 0.6 per cent in 2020.
Got it. So surely getting rid of indexation would save me money?
Yes and no, Professor Chapman said.
Removing indexation might mean the debt is paid off quicker as indexation is added onto the total amount a person owes and can therefore increase the length of time it takes a graduate to repay.
However, Professor Chapman said the amount coming out of a person's pay regularly would remain the same regardless of whether indexation was frozen or abolished altogether.
"It can't affect anything right now," he said.
"And the reason it can't affect anything right now is that people repay their HECS debt as a proportion of their income."
He said that same portion of income would still be repaid regularly even without indexation, so it would not put money back in graduates' pockets to help with cost of living pressures in the short term.
"It's important that [people] don't worry about their HECS debt going up like this. Repayments are not surging," Professor Chapman said.
"I think the reason it's getting a lot of attention now is that it's the first time in a very long time we've got much higher price inflation than before.
"Generally wages go up faster than prices. If all the wages went up at the same time as the prices went up, no-one would care about this. It'd be irrelevant."
Still prefer to abolish indexation?
Professor Chapman said having graduates pay indexation on their degree was still the fairest way to support university students.
"In the absence of indexation, all taxpayers are paying for the opportunity cost of the debt," he said.
Professor Chapman gave the example of a person who graduated university with a $10,000 HELP debt.
It might have taken that graduate a number of years to earn enough to start repaying the debt. And it might ultimately take them, say, 13 years to pay the debt back.
By this time, that $10,000 might only be worth $8,000 in today's money thanks to price inflation.
If the graduate pays back the $10,000 without any indexation, there is a gap of $2,000 that the government ultimately misses out on.
"If you just get the $10,000 back and no more, the government is subsidising that by a very large extent because price inflation is taking away the value of the $10,000," he said.
"Where's the other $2,000 coming from? It's coming from taxpayers."
Well, can’t we just get rid of university fees altogether?
We could, but it would be less fair and ultimately lead to a smaller, less inclusive university system, according to Professor Chapman.
"People who say we should not charge for university education are not giving enough weight, in my view, to the fact that if it's so-called free, it's paid for by all taxpayers," he said.
"The vast majority of taxpayers do not have the huge benefit of a university degree.
"Where's the other $2,000 coming from? It's coming from taxpayers."
"Not having any charge at all is basically the most regressive thing you can do in economic policy. That basically says: `We don't want to charge people who will be advantaged over their life'."
Professor Chapman said if we were to return to a system where users do not pay to study, we would end up with what we had before HECS: a much smaller university system with fewer places.
"How would you finance the size of the university system that we have now? If you did not have a HECS system it would cost billions and billions," Professor Chapman said.
"And you know what governments would do if it was so-called free? They'd make the system smaller because it would be too expensive to have a large system.
"If you want to make the access [for] the disadvantaged to universities really, really difficult, you make sure there aren't too many places. That will cut them out for sure.
"Go and have a look at other countries. There are two other types of countries: The ones who don't charge anything — they have small systems, the poor don't get into their public universities because they haven't got the money to finance it.
"Or go to the other countries that charge and have student loans that look like the United States, where people have [loan] defaults and terrible repayment hardships because there's no protection that comes through income contingent [repayments]."
