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$3 billion lifeline to reduce HECS-HELP debt explained

The government is changing the way student loan is indexed and will backdate it to June last year.

Millions of Australians are set to have $3 billion worth of HECS-HELP debt wiped under a plan to revamp student loan indexation. The move was confirmed as Treasurer Jim Chalmers outlined the 2024 Federal Budget on Tuesday night.

Instead of interest, student debts rise each year in line with the consumer price index (CPI). But after an inflation blow-out, and millions being saddled with big increases, the government has moved to cap indexation to whichever is lowest out of CPI and the wage price index (WPI).

Yahoo Finance has put together a simple explainer to help you understand all the changes and how they will impact you.

Find out how the 2024 Federal Budget will impact you by following Yahoo Finance’s live coverage here.

A hand with money coming through and two students in gowns and caps.
Former students will have their HECS-HELP debts slashed and a significant change to how they will be indexed in the future is coming. (Belinda Grant-Geary)

Basically, the debts were increasing at a higher rate than wages and if people were making minimum repayments, they were often finding their outstanding balance larger the following year.

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Yahoo Finance was flooded by former and current students fearing for their futures; from reconsidering having children and jeopardised home loans, to regret over higher education and being forced to work 230 extra hours to pay it off in bulk. A change.org petition run by Independent federal MP Monique Ryan has attracted over 288,000 signatures.

This year student debts were set to jump 4.7 per cent, but is now estimated to be 4.0 per cent. Last year was even worse as debts rose by 7.1 per cent in line with CPI.

HECS-HELP debts will now increase in line with CPI or WPI, whichever is lower.

CPI measures the movement in the price of a fixed basket of goods and services. WPI measures the movement in wages, and the price employers pay for labour.

Both are measured across economic quarters of March, June, September and December.

The changes will also be backdated to erase last year's horror jump and applied as a credit to your debt.

The government said this will "prevent growth in debt outpacing wages in the future".

The changes will need to be passed by June 1 to bring down this year's incoming jump and undo last year's.

The bigger the debt, the bigger the savings.

Here's an estimation of the benefits or you can check using the government's calculator:

HELP DEBT at 30 June 2023

TOTAL ESTIMATED CREDIT FOR 2023 AND 2024*

$15,000

$670

$25,000

$1,120

$30,000

$1,345

$35,000

$1,570

$40,000

$1,795

$45,000

$2,020

$50,000

$2,245

$60,000

$2,690

$100,000

$4,485

$130,000

$5,835

*Actual credit amount will vary depending on individual circumstances including repayments made during the year. All HELP debts that were indexed in 2023 and are subject to indexation on 1 June 2024 will receive an indexation credit.

You don't need to do a thing. You won't be getting a cash payment. The Australian Taxation Office (ATO) will automatically calculate your indexation credit and apply this to your ‘HELP debt account’.

You are eligible if you had an outstanding debt that was increased on last year or is set to be indexed this year.

If you had debt indexed in both years, you will get a credit for both.

The relief will also apply to apprentices with debt through the VET Student Loan program or Australian Apprenticeship Support Loan.

Former students who paid back their outstanding student loan between June 1, 2023 and the time the new proposed legislation is passed will "be eligible for a tax credit".

So, instead of getting that credit applied to your loan debt, it will be put on your tax.

"If your ‘HELP debt account’ balance is less than zero as a result of the reduction, and you do not have other primary tax or Commonwealth debts, the credit will be refunded via the usual ATO refund mechanisms which is to your nominated financial institution account as recorded by the ATO," the Department of Education said.

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