Sam O’Leary will wake up on Thursday $1,858 dollars further in debt. It’s not because he splashed out on a holiday, home loan or car – instead, the amount was automatically added to his $26,552 student loan.
O’Leary is one of more than 3 million Australians who collectively owe $74bn in student debt, a number that will rise to about $80bn on Thursday as a7.1% indexation rate – the highest in decades – comes into effect.
While the government does not charge interest on student loans, the original loan is indexed to inflation, meaning many loans are rising faster than they can be paid off and keeping graduates trapped in debt for decades.
When O’Leary completed a bachelor of arts and a postgraduate degree in teaching, his student loan was around $35,000. Since then, he’s paid off about $11,000 – but his total loan is still $28,410 with Thursday’s indexation increase.
After graduating in 2015, O’Leary spent time overseas or earned below the minimum repayment threshold, meaning he began paying off his loan in November 2020.
“In the past year I’ve paid $11,000 to the tax office, and indexation is applied to [the total loan] even though I’ve paid it,” he said. “I’m stuck in this cycle.
“And I’m 30. I feel for people coming after me; how are they ever going to be able to pay that off? It’s going up while wages aren’t, it’s a massive cash grab and we’re just falling behind.”
In Australia, student loans are tied to inflation and increase annually in line with the consumer price index. CPI figures released in April revealed debts would be indexed at 7.1%, up from 3.9% last year and 0.6% in 2020.
That equates to a $1,759 increase for people with an average student debt of $24,770. The 585,000 people with debts in excess of $40,000 or more in the latest financial period have been hit with at least a $2,840 increase.
A new report released by the National Tertiary Education Union on Thursday revealed repayment periods for some degrees could exceed four decades. That is partly due to increased course fees and high indexation.
The NTEU’s president, Dr Alison Barnes, said they were “seeing students who may be paying off their debts for the majority of their working lives”.
“This is not what higher education should look like,” she said.
The report found many four-year degrees, including business management, humanities, social sciences and law, could end up costing more than $100,000 once debts were repaid.
Jess Tran, a 26-year-old in Melbourne, graduated in 2018 with a bachelor of arts and a $27,000 debt in 2018. Since then, she’s paid down $2,907 – but due to indexation, the total debt has only reduced by $300 in five years.
“I’ve hardly made a dent to my debt,” she said. “And with the new indexation rate it’ll increase and I’ll end up with a larger debt.”
The education minister, Jason Clare, said the federal government had eased cost-of-living pressures by lifting the rate of government support payments and boosting commonwealth rent assistance in the budget.
He said the Australian Universities Accord, due to hand down its final report in December, was “considering a range of issues, including affordability and access to higher education”.
But pressure is mounting for the federal government to intervene, with a coalition of crossbenchers penning an open letter to the education minister to halt the increase as a matter of urgency.
The average amount of student debt is now $24,770 per student, compared with $15,191 a decade ago, while the number of people with debts in excess of $100,000 has also tripled in the past three years.
The Greens spokesperson for education, Mehreen Faruqi, said she had been “bombarded” with correspondence in the past weeks from people “desperate and distressed” about the student debt hike.
“Refusing to act is negligent and just plain cruel,” she said. “If the government refuses to provide a reprieve, the Greens will absolutely make this an election issue.”
The independent member for North Sydney, Kylea Tink, who also signed the open letter, said allowing indexation to go ahead was a case of “bureaucracy disconnecting from reality”.
“It’s a decision the government could make in the house this week, a one-off, and it would be broadly supported,” she said. “Both sides of the backbench recognise this fundamentally doesn’t make sense.”
• This article was amended on 1 June 2023 to remove the assertion that the upcoming indexation would be a record high. Indexation was 8% in 1990.
