Last week there was good news for struggling students and recent graduates saddled with sizeable student debts.
The prime minister, Anthony Albanese, in an outing on FM Radio, acknowledged there was “a range of areas where we need to do much better with the younger generation … and Hecs [the Higher Education Contribution Scheme] is one of them”.
After a horror year of 7.1% indexation of student debts and with the parliamentary library estimating that this year will see another 4.2% – 4.8% growth in the amount outstanding, help is on its way.
The Universities Accord final report, released in February, recommended the commonwealth ensure that loans didn’t outpace wage growth by setting the indexation rate to whatever was lower out of the consumer price index (CPI) and the wage price index (WPI).
The tertiary education sector considers this a lock, and Guardian Australia understands this is the government’s preferred solution, likely to be announced ahead of the budget.
The only problem is it may not actually restrain the growth of student debts.
As Andrew Norton, professor in higher education policy at the Australian National University, has noted: “In the last 25 years the WPI has been lower than CPI indexation only four times, including 2022 and 2023.”
So the solution put forward by the accord and the government and supported by much of the crossbench, including independent MP Monique Ryan, would’ve worked a treat if it had been in place for the last two years but otherwise very rarely would’ve made any difference.
Norton says that indexation is calculated using a composite of two years of CPI, “the practical effect of which is to dilute recent changes [in inflation]”.
“At the start of the inflationary cycle, indexation was below what it should have been, but on the downside [as inflation decreases] indexation is above inflation,” he tells Guardian Australia.
One tune-up could be to ditch the two-year calculation method. Using a one-year method, WPI has been lower than CPI seven times in the last 25 years, Norton calculates.
Let’s turn from the past to the future. The mid-year economic update projected WPI to be higher than CPI this year (by a whisker, 0.25%) and every year, growing to a 1% gap in the third and fourth year.
This is explicit government policy. Listen to the treasurer, Jim Chalmers, or workplace relations minister, Tony Burke, and they will boast that Labor has got wages moving again, as they are growing faster than inflation.
While good for workers the upshot for students is this: even if the Myefo inflation estimates are a bit optimistic, the WPI will probably not be lower than CPI and the accord model will not be a handbrake on the growth of student debts.
The year it would have been is the horror year that’s already in the rear-view mirror.
Norton argues that unless the government is planning to make the changes retrospective, it’s “too late” for changes to take effect on the next round of indexation on 1 June 2024. If that’s correct, it would be another increase of more than 4% already baked in.
Legislating the accord model to apply from June 2025 would be the very definition of shutting the stable door after the horse has bolted.
Norton prefers a simpler cap, a maximum indexation rate that would provide students certainty with “no worrying about outlier years in the CPI or any of the other possible indicators”.
A cap of 4% would “cost the commonwealth next to nothing”, Norton says, but could knock the hard edges off tough years like the runaway 7.1% last year. If you wanted to be more generous to students, it could be set lower, at 3%.
As Labor dawdled, the Greens have been attempting to capitalise, campaigning to abolish indexation of Help debts altogether, including with a private senator’s bill introduced in November 2022.
Perhaps that is an ambit claim and they could meet halfway: a cap that limits indexation more than once in a blue moon, but not set so low that it ruins the budget.
Norton predicts that when the opposition, the Greens and teals see that the wage price index has so often outpaced CPI “that will change the politics of this”.
The accord changes are broader than Hecs indexation. We expect the government will also move to direct banks to treat Hecs differently for assessing mortgages and other loans.
In line with the accord, repayments should be treated like taxation, something that cribs your ability to repay, rather than another debt – something which is now a big roadblock to borrowing enough to get in the housing market.
Changes to the income threshold and the rate of repayment would make a huge difference to easing cost-of-living pressures on recent graduates.
Given Albanese flagged “a range of areas” where young people could be helped, we’ll wait until we see the whole package.
But when it comes to the growth of debts it seems the Albanese government, so determined to govern from the so-called “sensible centre”, may have passed up the opportunity to help when it was most needed.
