Around three million Australians are set to see an increase of over $2.5 billion in outstanding student loan debt due to annual indexation, effective from June 1. The Albanese government had pledged a 20 per cent reduction in student loans prior to this indexation, but necessary legislation has not yet been introduced, as parliament is not sitting until July.
As a result, borrowers will incur a 3.2 per cent rise in their debts, marked by the Australian Tax Office’s yearly adjustment that aligns unpaid loans with inflation or wage growth. This year’s indexation rate is marginally lower than the previous year’s 4 per cent, attributed to a steady inflation rate of 2.4 per cent recorded for three consecutive months up to April. Consequently, the cumulative national student loan debt exceeding $79.3 billion will increase by $2.5 billion this year. Borrowers with average debts nearing $26,500 will see an additional $848 added to their accounts.
Although the government’s intention to reduce student debt by 20 per cent is confirmed, it will be enacted later than anticipated. The federal government had made this commitment last year, but with parliamentary sessions resuming only on July 22, the necessary legislative process will be delayed. Education Minister Jason Clare has assured that this reduction will be the first item of legislation to be addressed once parliament reconvenes, describing it as a transformative measure for borrowers.
For individuals burdened with an average debt of $50,000, the proposed reduction could mean a significant $10,000 decrease. Collectively, the measure is expected to alleviate $16 billion across all student loans. The legislation is anticipated to proceed smoothly through the House of Representatives, where Labor holds a majority, and in the Senate, where Labor and the Greens collaborate.
Once approved, the 20 per cent reduction will be automatically applied and backdated to June 1, and the indexation rates will also be recalibrated accordingly. Indexation for student debt occurs each year on June 1, dictated by the Australian Tax Office based on the Consumer Price Index, which reflects inflation rates. The government has instituted limitations following last year’s significant 7.1 per cent indexation tied to rampant inflation, such that future adjustments cannot exceed the lower of the Wage Price Index or the Consumer Price Index.
In 2023, the Consumer Price Index registered at 3.2 per cent, while the Wage Price Index stood at 3.7 per cent, thereby influencing this year’s adjustments. Overall, this situation reflects the ongoing challenges facing students and graduates in managing their debts amidst inflationary pressures and governmental policy changes.