HECS debt reforms are long overdue

While it brought to an end a brief period when university tuition was "free", in the sense that the taxpayer and not the individual student picked up the bill, it was widely recognised that this was unsustainable.

The only way to contain costs would have been to cap the number of student places universities could offer. That would have, quite perversely, gone directly against the Whitlam government's intent of making tertiary education more widely available.

The challenge was to come up with a plan that would, on the one hand, mean every eligible person who wanted to go to university was able to and, on the other, not require taxpayers to write an endless succession of blank cheques.

Equity was also a consideration. People with university degrees would, on average, earn significantly more than those who had left school at 15 or 16 over the course of their lives. It was hardly fair to expect a builder's labourer or a shop assistant on a basic wage to subsidise the education of a doctor or a lawyer who would go on to earn far more than them.

HECS, which has since morphed into the Higher Education Loan Program (HELP), addressed all of these issues.

Yes, students would be expected to pay for their tuition but, unlike the bad old days before Whitlam, that didn't have to be paid up front. The Commonwealth would cover the immediate cost with the student incurring a corresponding debt to be paid off through the tax system.

That debt would not incur interest and would not have to start being repaid until the student reached a pre-determined income threshold.

While HECS (or HELP) performed as advertised for decades it has begun to fray at the seams in recent years.

Although interest is not charged, HECS bills are indexed in accordance with the CPI every year. That wasn't an issue during the low inflation years when the CPI averaged well below prevailing interest rates.

The return of high inflation in 2022 and 2023 turned that on its head however. Last year HECS debts rose by 7.1 per cent as a result of indexation. This year's increase is expected to be 4.8 per cent.

This means that students making the minimum mandatory payment are likely to finish the year with the same - or possibly even more - debt than at the start.

The Australian Universities Accord review released in February identified this as a major problem. It recommended that the scheme be amended to insure that annual indexation did not exceed wage growth and that the timing of indexation increases be made more frequent in order to reduce the impact of inflation.

Federal Education Minister Jason Clare said at the time that he was open to recalculating the way HECS debts were calculated and this week the Prime Minister foreshadowed relief in next month's budget saying his government "needs to do better".

One reform that could be implemented immediately would be to revisit the point at which repayments become mandatory. In 2006 that was $38,100. Today it is $51,000. In 2006 the average full time weekly wage was $54,652. Today it is $92,040 (Morgan-McKinley). If the mandatory income repayment point was increased to match wage growth it would $63,992 or almost $13,000 higher.

The inequity is obvious. The current repayment figure is just $6000 above the basic wage. A person earning that cannot be said to be benefiting from their degree. A barista makes that.

Mr Albanese and Mr Clare could fix this tomorrow. Why haven't they done so already?