How HECS Became Just One More Tax

Some 3 million Australians have a HECS debt. With a 7.8% indexation rate set to hit HECS debts on 1 June, many will never be able pay it off. How did we get here? 

HECS was introduced at a flat rate of $1,800 per student under Bob Hawke’s government in 1989. But it was the Howard government in 1997 that brought in the fee bands for different courses that we know today, and further increases to fees followed in 2007.

Anyone who started university from the late 90s onwards will have heard that HECS was “interest free”, a “good” debt and an investment in yourself. There’s no interest charged (though it will be “indexed” to inflation…). Besides, you’ll only have to pay it off when you’re making big bucks thanks to your degree.

We were convinced. Some 60% of Australians now attend university to some extent by the age of 22.

The sell worked so well, in fact, that it devalued the labour market value of the degree. Most people can now get a degree if they want one, but the debt remains the same.

In 2022, the median employee’s weekly income was $1,250, or $65,000 annually. At that level of income, a HECS debtor pays an additional 3% in income tax, levied from their first dollar of income.

In other words, on a $65,000 income HECS repayments amount to $1,950 over the course of a year. Yet on 2023’s projected “indexation” (not interest…) of 7.8%, the average HECS debt of $23,000 will increase by $1,794. 

Even if the CPI stabilises at 3.5%, that still makes $850 in indexation per year, leaving the median earner paying off that average debt via an additional 3% income tax over around 20 years.

This is roughly the situation for, for example, recent nursing graduates, whose three-year degrees cost $20,400 and who make around $70,000 if working full-time. 

Humanities degrees, meanwhile, have become a no-go for anyone who doesn’t already have money, with a three-year degree costing $43,500. A graduate on $90,000 per year has to pay an extra 6% income tax (from their first dollar of income) in HECS (that’s $5,400), and so would pay off a humanities degree in eight and a half years even without the interest, I mean indexation.

But this year, that debt will increase by $3,400, putting the lucky $90k-earning humanities graduate on a 20-year track to paying off the debt.

If we believe a highly-educated workforce is the key to maintaining high standards of living – or, who knows, even believe in education for its own sake – we are clearly going about it the wrong way.

Follow Christian on Twitter for more news updates.

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