Impact of $16 billion HECS debt cut 'kind of invisible'

The federal government has promised to spend $16 billion on cutting debt by 20 per cent for more than three million tertiary students.

Many have welcomed the changes but Australian National University economics researcher Ben Phillips says they will mostly affect a small number of people.

"Most of the impact will be kind of invisible," he told AAP.

"It just applies to those with debt right now, it doesn't affect those who will have debt in the future - and for those who have paid it off, it makes no difference at all."

Middle income earners, who often go on to earn more than $100,000 about five or 10 years after graduation, are the biggest winners from the government plan, according to Associate Professor Phillips.

"They all earn very good money and they will enjoy the benefits of paying less HECS and paying off the HECS more quickly, but they're high income earners who can completely afford the repayments," he said.

Treasurer Jim Chalmers said the measure would provide economic relief for young Australians and those with the average HECS bill of $27,600, for example, will see it reduced to about $22,000.

It could allow young Australians to more easily buy a home as HECS debt is a consideration for bank loans.

But Assoc Prof Phillips maintains the impacts are relatively marginal and says the government's plan could have other indirect consequences.

"What's the cost in terms of government having less revenue down the track?" he said.

"Does that mean there's less money for schools, less money for health, less money for welfare and other things that are probably more pressing than student debt repayments?"

Shadow Treasurer Angus Taylor criticised the proposal, saying taxpayers would ultimately foot the bill.

"The average Australian household will pay $1600 for this, and the average Australian household doesn't have the HECS debt," he told Canberra radio station 2CC.

In a letter to Prime Minister Anthony Albanese, Greens leader Adam Bandt said the party would support efforts to cut student debt but wanted the measure enacted sooner as the proposal will not come into effect until the next election.

"Student debt should not be held to ransom to an election campaign when there are the numbers in parliament to cut student debt right now," he said.

The federal government moved earlier in 2024 to cap indexation on HECS at the lower of either the rate of inflation or the wage price index after the indexation rate jumped above seven per cent.

According to federal education department projections, a social worker with a debt of $50,000 entering the workforce on a full-time income of $70,000 would repay $1300 less in the first year under the plan.

They would pay off their debt over 10 years and reduce their total repayment amount by $11,555 as their income increased over the decade.

An engineer with a $33,000 student debt from their bachelor degree and a $75,000 starting salary would enjoy an extra $1000 in their first year of repayments, and save more than $7400 in the six years it took to clear their study debt.

A nursing graduate with a HECS debt of $15,000 and a starting annual income of $56,000 would save an average of $1100 each year, the figures showed.

Australian Associated Press