HECS indexation to be overhauled in budget with $3 billion in ...

Millions of Australians with student loans will have hundreds of dollars wiped from their HECS debts as the federal government rolls out its plans for cost-of-living relief in the upcoming budget.

Every June HECS debts are indexed and bumped up a few percentage points to make sure the amount owed keeps up with inflation.

For almost 35 years indexation has been calculated based on the Consumer Price Index (CPI), which is now at historic highs.

Last year's 7.1 per cent increase was the largest hike since 1990 leaving some in a debt spiral with loans increasing faster than they could be repaid.

Annual HECS indexation will now be calculated on whichever figure is lower out of CPI and the Wage Price Index (WPI).

The policy will be backdated to June 1 2023, which means last year's 7.1 per cent indexation will be lowered to the WPI of 3.2 per cent.

"This will wipe out around $3 billion in student debt from more than three million Australians," Education Minister Jason Clare said.

HECS debt indexation to 'wipe out what happened last year'

The government released a wide-ranging review of higher education called the Australian Universities Accord earlier this year.

It warned student debt levels, which had reached $74 billion, were turning people off universities and recommended making HECS "simpler and fairer".

Among its recommendations was indexing HELP loans to whichever was lower out of CPI and WPI.

Mr Clare said adopting the reform and backdating it to last year would help ensure HECS debts did not rise faster than wages in future.

"This will wipe out what happened last year and make sure it never happens again," he said.

Students and graduates had been bracing for another large indexation hit this year of about 4.7 per cent.

The increases had led to a growing backlash with some students so despondent they were considering leaving the country.

How much will you save on your HECS debt?

Instead of another dreaded rise, students will now receive an indexation credit.

Last year's indexation rise of 7.1 per cent will be lowered to 3.2 per cent under the new policy.

For a student with the average debt of $26,494 that means an indexation credit of about $1,200 for the last two years if legislation reforming HECS is passed after the budget.

The debt relief will also apply to apprentices who owe money through the VET Student Loan program or Australian Apprenticeship Support Loan.

These loans work in a similar way to HECS but for young people undertaking a course at TAFE or an independent higher education provider.

According to the latest available figures from 2022 around 30,000 students owed about $220 million.

"This continues our work to ease cost-of-living pressures for more apprentices, trainees and students, and reduce and remove financial barriers to education and training," Skills and Training Minister Brendan O'Connor said.

"By backdating this reform to last year, we're making sure that apprentices, trainees and students affected by last year's jump in indexation get this important cost-of-living relief."

Wider university reforms may be ahead in the budget

There will likely be more money to fund wider-ranging changes to universities recommended in the government's Accord review.

Its other recommendations included:

reviewing bank lending practices so that HECS debts didn't prevent people from borrowing money to buy a housechanging the timing of indexation so it occurred after annual compulsory paymentsrepealing the previous governments Job-ready Graduates program which increased the cost of some degrees and lowered others

The Greens have been pushing the government to go further and may demand further changes to support the legislation in the Senate.

As cost-of-living pressures have grown, so too has momentum for change.

A recent petition from MP Monique Ryan calling for indexation changes attracted more than 285,000 signatures.

Shadow Education Minister Sarah Henderson has also called for the government to act.

The government's budget will be delivered on May 14.