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How do we protect students from ballooning HELP debts? A fixed maximum indexation rate would help
By Andrew Norton, Australian National University
The indexation of student debt is arguably the federal government’s biggest political problem when it comes to universities.
Last June, student debt balances increased by 7.1%, the highest rate in decades. While HELP loans do not attract interest, they are indexed to inflation as measured by the Consumer Price Index (CPI).
When inflation remained low, this was not an issue for those with a HELP debt. But last year, as inflation rose, on average A$1,700 was added to each borrower’s debt. The next indexation date is approaching on June 1. We won’t know the 2024 indexation rate until the March quarter CPI level is released, but it’s likely to be around 5%
Calls for change
At the same time, community pressure is building.
An online petition started by independent MP Monique Ryan is calling for a change to the way debts are indexed. It has amassed more than 230,000 signatures. Other independent, Greens, Liberal and backbench Labor MPs are also raising the issue in federal parliament.
Media reports regularly highlight the stress students and graduates experience due to their rising debts.
So what should happen?
In February, the Universities Accord final report proposed setting indexation at the lower of CPI or the Wage Price Index (WPI), which measures wage increases.
The government is now “looking at” this recommendation (along with all the others in the report). But it should be considering an alternative.
While the WPI would have lowered indexation in recent years, in most years it is higher than CPI. This means students would not necessarily be better off.
This is why a fixed maximum indexation rate of 4% would better protect HELP borrowers against unpredictable increases in their student debt.
A lower-of two indicators indexation system
The accord’s proposed “lower-of two” indicators indexation policy aims to balance competing policy considerations: the cost to government of lending to students and minimising the risk to borrowers of unexpected spikes in their debt.
Read Full Story https://theconversation.com/how-do-we-protect-students-from-ballooning-help-debts-a-fixed-maximum-indexation-rate-would-help-226497