All Australians will have their student debt cut by 20% next financial year, as part of a major federal government overhaul designed to boost access to education and address “intergenerational unfairness”.
The change, which will be outlined by the prime minister at a campaign rally in Adelaide on Sunday, will wipe about $16bn worth of debt and is being sold as a cost-of-living measure for young Australians.
According to government figures, a university graduate with an average debt of $27,600 will save $5,520. The 20% reduction is not capped and also applies to VET loans and apprenticeship support loans.
When combined with changes to how the indexation on student loans is set, as detailed in the May budget, close to $20bn of student debt will be removed for 3 million Australians.
“Our whole nation benefits when we make it easier for people to access education. This is about opening the doors of opportunity – and widening them,” Anthony Albanese said in a statement.
“This will help everyone with a student debt right now, whilst we work hard to deliver a better deal for every student in the years ahead.”
On Saturday, the federal government also announced it would lift the minimum repayment threshold from $54,000 to $67,000 in 2025-26, which is expected to save the average debt holder about $680 a year.
The minimum payment threshold would also be indexed to always stay at 75% of average graduate earnings, in line with recommendations in a universities accord final report, released in February.
The education minister, Jason Clare, said changing the minimum payment threshold would not add to inflation pressure or influence the Reserve Bank’s thinking on interest rates.
“That is not the advice we have received from Treasury,” Clare said.
“By reducing the amount people have to pay each year, this will encourage a lot more people to work more hours and particularly young women, who are unfairly affected by how the system works at the moment.”
The overhaul has been described as a key part of Labor’s reelection campaign as it seeks to address crippling student debt and secure the votes of younger Australians.
Since the Albanese government entered office, debts have risen by more than 16% – equivalent to more than $12bn.
Many students, including Grace Franco, the education officer of the National Union of Students, have warned they may spend decades paying off their debts.
“We’re set to be the most indebted generation in history,” she told Guardian Australia earlier this year.
Without the change to indexation earlier this year – which capped the rate for loans to whichever is lower of the consumer price index or the wage price index – graduates would have been exposed to last year’s horror indexation hike.
In 2023, a 7.1% index rate, up from 3.9% the year earlier, resulted in graduates with an average debt of $24,770 paying an additional $1,759 for their education. The change to indexation ensures student debts can’t outpace wage growth.
Australians paid a record $2.9bn in voluntary Hecs/Help repayments in the 2022–23 financial year, according to ATO data, up from $780m the previous year, in a bid to escape indexation. It was equivalent to a 272% increase in voluntary repayments.
On Saturday, Greens’ spokesperson for higher education, Mehreen Faruqi, welcomed the change to the minimum repayment threshold, but said the proposal would “not shave a cent off your student debt”.
The Greens, which are also appealing to a younger demographic for support, have called for all student debts to be wiped and for the government to introduce its changes to parliament next week, rather than next year.
