Could Australians’ HECS/HELP Debt Ever Be Wiped?

US President Joe Biden just announced a plan to wipe out $10,000 of student debts for Americans earning less than $125K a year.

In the US, student debt has the potential to drastically alter a person’s financial future, but here in Australia we’re lucky to have access to fee help and other schemes that make studying more financially accessible. However the ways we think about these schemes could be changing.

A Short History Of HECS

“Australia used to have a mix of fairly cheap fees and scholarships. Then for about 15 years, it was free,” Professor Andrew Norton, who has worked in higher education policy since 1997 including the Grattan Institute, told Junkee. 

From 1989, changes were reintroduced and Australia started the world’s first income contingent loan system known as HECS or HELP, Professor Norton explained.

Income contingent means what its name suggests: that the amount someone has to repay on the loan is contingent to their income. That means, that their repayments increase or decrease depending on how much they earn, which seems like a pretty good system on paper. 

And a few countries have even copied it. England and New Zealand are the most primary examples — you know, fairly similar countries who have sort of similar higher education systems.

Why Is It Called A ‘Good Debt’?

Our HECS-HELP debt is even sometimes referred to as a ‘good debt’ because you don’t have to repay a fixed amount. This year, for example, if you earn below the threshold of around $48k annually, you don’t have to repay anything.

“It’s designed to sort of maintain your living standards at a more constant pace than say a fixed repayment,” said Professor Norton. “It depends on people’s own preferences, but I guess my view is that because this is a soft debt in a sense that you can manage.”

Of course, it is still a hefty debt to pay back for many people and can affect things like how much money a person can borrow to buy a house.

But It Does Get Bigger Every Year, Right?

And yes, it also gets indexed every year to adjust for inflation. That’s what happened this year in June at an indexation rate of 3.9% compared to the previous 0.6%, which brought the price of debt right up. 

Professor Norton pointed out that even though indexation happens every year, it’s previously attracted very little comment.

“And next year it’ll be significantly higher than that, because that sort of didn’t capture the main quarter inflation surge that we had in Australia. So I think this will turn into a bigger issue,” he added.

“Certainly this is a new complication in the politics of HELP debt.”

Will Our Debt Ever Be Forgiven?

In terms of what the US has done with forgiving a certain amount of debt for certain people — well, Australia’s system is vastly different, and it’s unlikely all our HECS will be wiped away any time soon. 

“I think the Greens would do it and in the event they actually got a majority in the parliament, but really the US system is quite different. Most people there, what we call mortgage style loans, where you repay a fixed sum over a fixed period of years.

I think this is one of the reasons why you get this kind of debt forgiveness argument, because so many people are stuck in dealing with debt. They find it very hard to manage.”