Labor to wipe 20 per cent of HECS debt in $16 billion move

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Tradespeople and university graduates will have a fifth of their student loans wiped in a striking Labor pledge to ease the debt burden on younger Australians.

Prime Minister Anthony Albanese, whose government is sagging in polls and fighting to inspire young voters, said $16 billion would be erased from the national debt pile of more than $70 billion, immediately shaving $5500 off the average debt of just over $27,000.

The growing number of Australians with larger debts of about $50,000 will have $10,000 taken off their balance, drastically shortening the amount of time it will take to pay back a loan.

Prime Minister Anthony Albanese (left) and South Australian Premier Peter Malinauskas, pictured in 2023, will attend a rally in Adelaide on Sunday. Credit: Alex Ellinghausen.

Taken together with increasing the income threshold for repayments and switching to a marginal repayment system, the reforms, first revealed by this masthead on Friday, will wipe nearly $20 billion of student loans.

“We’re already fixing indexation and, today, we are going further by taking 20 per cent off student debt for everyone with a student debt,” Albanese said in written remarks ahead of a speech in Adelaide on Sunday.

“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.”

The government said it would introduce legislation to give effect to the changes next year but the chance of an election in March or April means there might be little time in parliament.

The proposed start date for the debt cut is July 1 next year, meaning the pledge might turn into a core election promise.

Albanese will make the announcement at a rally with South Australian Premier Peter Malinauskas on Sunday.

It will be the first in a series of speeches over coming weeks in which the prime minister will outline his second-term agenda after weeks plagued by his off-taste Tourette’s insult, the purchase of a $4.3 million holiday home, and debate about his relationship with former Qantas boss Alan Joyce.

Sources previously told this masthead Labor’s second-term agenda would be focused on HELP changes, universal childcare and new investments in TAFE.

The wiping of debt, which mirrors similar moves by the US Democrats, although Americans are not helped by the government to pay tertiary study fees, will affect people with HELP debts (previously known as HECS), VET student loans and apprenticeship support loans.

The 20 per cent cut will not have an immediate effect on people’s take-home pay because repayments are levied off the person’s income, not as a proportion of the loan size.

However, in addition to the changes to repayments and thresholds, the package will both put more money into people’s pockets and cut the number of years it takes to pay off a debt, potentially making it easier for young people to own a home.

On Saturday, Labor said it would lift the income threshold at which a person must start paying back their loans, from $54,500 to $67,000. The figure will be indexed so it rises in line with wages.

The government will also adopt a recommendation by the Universities Accord to move to a marginal repayment system.

At present, when a person earns between $54,435 and $62,850, 1 per cent of their salary is diverted to repaying their HELP debt. Once their pay increases to between $62,851 and $66,620, 2 per cent of their salary is taken to repay the debt. Moving to a marginal repayment system would mean people will pay the higher rate only on the portion of their income in the higher bracket.

Independent economist Chris Richardson said the changes were sensible. “And that’s good. ‘Sensible’ is rare when elections loom,” he said on Saturday.

“It makes sense to raise the income at which debts start to be repaid, and for the repayment to be on a sliding scale.

“The changes are also pretty generous. Remember that improving the treatment of those who went to uni has to be paid for by those who didn’t go to uni, so these changes come at the cost of less well off people (who’ll eventually have to pay for the more generous treatment of graduates).”

Before the government revealed the 20 per cent slashing of loans, which this masthead signalled on Friday, Richardson expressed concern about this policy.

“I agree with the [government’s] view that this won’t hurt inflation prospects (as it is a steady cost, rather than a big lump),” he said.

Australia’s student loans are off-budget, meaning the wiping of debt will not have a major effect on the budget deficit/surplus.

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