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HECS Changes

Written by Michal Lancemore

HECS debts have lay dormant in the minds of most for decades.  That is, until this time last year, when the indexation rate was the most talked about event since the coronavirus.

For almost 35 years the indexation of HECS debts has been calculated based on the Consumer Price Index (CPI).  Thanks to skyrocketing inflation levels, last year’s 7.1% increase was the largest hike since 1990.

Following the outrage that ensured, and on a recommendation from the recent Australian Universities Accord Final Report, the government have announced that the annual HECS indexation will now be calculated on whichever figure is lower out of CPI and the Wage Price Index (WPI) – assuring students that their debt will not rise faster than wages in future.

The policy will be backdated to 1 June 2023, which means last year’s 7.1% indexation will be lowered to the WPI of 3.2% and will essentially wipe out $3billion in student debt for 3 million Australians.

Instead of another dreaded rise (prior to this change the anticipated indexation rate was to be 4.7% from 1 June 2024) , students will now receive an indexation credit.

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.

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What if you have paid out your HECS debt?

PRE 1 JUNE 2023

You will not receive an indexation credit because the HECS debts was not affected by the 7.1% indexation.

POST 1 JUNE 2023

You will still receive an indexation credit which will become a tax credit if you have no other outstanding loans.

THINGS OF NOTE:

  • Before the indexation credit can be applied, it needs to be agreed by both Houses of Parliament.
  • After legislation is passed and commenced, the ATO will automatically apply the indexation credits.
  • This process is expected to begin after legislation.
  • The indexation rate from 1 June 2024 is widely tipped to be 4%.

 

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