HECS Indexation Rate 2024

Since 1989, the Higher Education Contribution Scheme (HECS) has been an integral part of Australia’s higher education system. This loan program, which is contingent on income, enables students to postpone their university fees payment until they start earning a specified income. While HECS has undoubtedly made higher education more accessible, one aspect that often flies under the radar is the indexation rate – a seemingly innocuous detail that can influence the growth of student debt over time.

Indexation, an annual fee applied on June 1, affects the total sum of a person’s HECS/HELP debt. The principle of indexation suggests that the price of an item adjusts according to an external factor. In this scenario, the ‘item’ is the student loan, and the ‘external factor’ is the Consumer Price Index (CPI). The CPI, a quarterly data set released by the Australian Bureau of Statistics (ABS) to track living costs, dictates the yearly rise in student loans.

Indexation is a yearly adjustment made to HELP debts to reflect changes in living costs. This adjustment is applied every year on June 1st, based on the Consumer Price Index (CPI) for the preceding March quarter, which gauges inflation in Australia. Much like interest, your HECS debt will grow over time due to this ‘indexation’ process.

To put it simply, if the CPI rose by 2% in the 12 months leading up to March 2023, the indexation rate applied to HECS debts on June 1st, 2023, would be 2%. This implies that a HECS debt of $20,000 would increase to $20,400 after indexation. It’s a minor yet impactful change that can have significant implications for students.

In the recent Budget announcement, the Government introduced changes to the Higher Education Loan Program (HELP) indexation. From now on, the indexation will be determined based on the lower of two key indicators

1. Consumer Price Index (CPI)
2. Wage Price Index (WPI).

This change is intended to ensure a fair and balanced approach to adjusting HELP debts.

On June 1, 2024, the Australian Taxation Office (ATO) adjusted the HELP debt by 4.7% using the Consumer Price Index (CPI). However, a proposal suggests that this rate could be reduced to an estimated Wage Price Index (WPI) figure of 4.0%. This indexing process ensures that your debt remains in line with changes in the cost of living.

On June 1, 2023, the rate was initially set at 7.1%, but it was subsequently revised down to 3.2%. On June 1, 2024, the rate was initially set at 4.8%, but it was later revised down to 4.0%. 

These revisions are based on the assumption that the formula for the Wholesale Price Index (WPI) indexation is the same as that of the Consumer Price Index (CPI). This involves comparing the sum of quarterly figures ending in March with the sum of the four previous quarters.

Below is a tool that can help you anticipate the potential growth of your HECS-HELP debt, given that the indexation continues as it did the previous year. Click here to calculate HECS Indexation

The calculator is pre-set to $25,000, a figure that represents an average HECS-HELP debt.

To get an idea of how your debt might shape up after indexation, all you need to do is enter your current debt balance. This will give you a projected figure of your debt post-indexation. Please note, this is an estimated figure and the actual amount may vary.

Learn how to calculate HECS Indexation in details

According to ABC business editor Michael Janda,

Inflation, which gradually diminishes the purchasing power of money over time, would naturally decrease the ‘real’ value of HECS debts if they were not adjusted accordingly. By linking these debts to the Consumer Price Index (CPI), the government ensures that the debt’s value aligns with the most widely accepted inflation indicator, thereby keeping its ‘real’ value constant.

The indexation factor, which is updated annually, is due for its next update on June 1, 2024.

Under the existing legislation, the indexation factors for the years 2023 and 2024 are calculated using a formula that incorporates the Consumer Price Index (CPI).

In response to the recommendations of the Australian Universities Accord Final Report Document, the government announced on May 5, 2024, that starting from 2023, the indexation rate will be the lower of either the CPI or the Wage Price Index (WPI).

Consequently, the WPI will be used for the years 2023 and 2024, resulting in a substantial credit for those with student loans.

In the last 14 years, the indexation rate has seen some fluctuations. The smallest rate recorded was in 2021, standing at a mere 0.6 per cent.

On the other hand, the peak was reached just last year, with the rate soaring to 7.1 per cent.

Let’s take a trip down memory lane:

The government’s decision comes after the release of a wide-ranging review of higher education called the Australian Universities Accord earlier this year. The review warned that the student debt levels, which had reached $74 billion, were discouraging people from attending universities and recommended making HECS “simpler and fairer”. One of its recommendations was indexing Higher Education Loan Program (HELP) loans to whichever was lower out of CPI and WPI. Under the new policy, students will receive an indexation credit instead of another increase. For a student with the average debt of $26,494, this 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, which work similarly to HECS but are for young people undertaking a course at TAFE or an independent higher education provider, amounted to about $220 million owed by around 30,000 students in 2022. “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,” said Skills and Training Minister Brendan O’Connor. The government’s budget, which will be delivered on May 14, is likely to fund wider-ranging changes to universities recommended in the government’s Accord review.