The HECS debt system has been broken for a long time. Now, change is finally coming.

Imagine owing thousands upon thousands in HECS debt. Now imagine the fear of not being able to pay it off. 

It's a reality currently facing many young Australians. But now, at last, the Federal government has announced changes it will put in place to help ease the burden on people paying off their education. And they can't come soon enough.

Watch: the reality of HECS debts. Post continues below. 

Rachel is in her mid 20s and finished a degree in communications at a private higher education provider. It gave her the tertiary education and experience she desired, though the price was eye-watering.

"My degree six years after graduating is $88,000, and I don't regret doing it, but the thought of paying it off is really exhausting and stressful — particularly given my industry doesn't pay a significant amount. I do wish I thought it through more but everyone around me encouraged me to go for it. No one in my family is financially educated so we all got a slap in the face honestly," she told Mamamia.

"At the time I wasn't too focused on the cost of the degree, as I figured it was a problem for years later. So I kicked the can down the road for a while, and only recently have I had to start paying it off. The interest alone has meant it's been so much harder to pay off the sizeable chunks. With inflation high, I just feel really hopeless about the whole situation.

"And I know so many of my friends who I studied with are in the exact same boat. Some of these people make incredibly good money ($100,000+), but they feel crippled by this debt that will never go away."

Chloe studied to become a teacher, but never ended up finishing the degree, deciding instead to stay in her hospitality job which she loves. But that doesn't mean her HECS debt has simply vanished. 

"My teaching degree cost about $30,000, and when you compare that with other degrees in business, science or medicine, it doesn't sound like much. But with inflation in mind, and the fact I am a low to middle income earner, it's left me in a tight spot with repayments," she explains.

"I'm about to turn 30 and I've already got other debts to deal with like my car and I'm also renting amid a cost of living crisis. Having to deal with my stupid HECS on top of all that just feels kind of devastating. And really frustrating."

Eilish shared her story on TikTok recently, saying she was ready with her deposit to go to the bank and ask for a loan to buy her first home... only to be told her HECS debt was a deal breaker. 

"The one issue I have is my f**king HECS debt, which is $33,000. I was told it doesn't even matter how much HECS debt I have, the issue would be exactly the same, particularly because I'm a sole trader. So I now have to use my house deposit savings that I've been saving for years to pay off my HECS debt and pretty much have to start again," she said. 

"I have to pay it off to essentially then have any borrowing power. Say I paid off $30,000 today and had $3,000 of HECS left, the bank told me it's still the same response."

@eucamusic Warning to #firsthomebuyer’s with a #hecsdebt 😀🔫🫠🫠🫠🫠 #realestate #buyingahome #homeloans ♬ original sound - EUCA🍉

These three women certainly aren't alone in their experiences. Speak to pretty much any young person who went to university, and they'll tell you that HECS debt really, really sucks. 

Eligible students in Australia can pay off their degrees using a HECS-HELP loan — a Higher Education Contribution Scheme and High Education Loan Plan.

Under the current system, when a graduate begins earning more than $51,550, HECS repayments start coming out of their pay the same way as income tax.

Repayment rates start at one per cent of a person's salary, but dramatically rise to ten per cent once graduates earn $151,201 or more. Though let's be real — there are very few young people earning over $151,201. While HECS debts do not earn interest, the sum is indexed annually on July 1 by the rate of inflation, meaning debts were indexed by 7.1 per cent last year.

In 2023, more than a million Aussies saw their HECS debt grow faster than it was being repaid because of the indexation system. The government also received more money last year from HECS debts than it did from its main fossil fuel tax.

Ultimately, the concern long-term is also whether rising HECS debt risks deterring young people from considering higher education altogether.

Jen Hughes is a Mortgage Broker with Mortgage Choice. Previously speaking with Mamamia's news podcast The Quicky, she said that HECS debt is also stopping some young people from owning a home.

"Most lenders look at the HECS debt and they calculate your borrowing capacity based on this. Whether it's a personal loan, car loan or credit card loan, these things are considered, along with your income and ability to pay it off. If your income is quite high, these debts may not affect your borrowing capacity as much.

"On the other hand, someone whose income isn't as high, they may need to clear these debts to get a home loan approved."

Now, it seems the government may be listening. On May 5, Education Minister Jason Clare announced the government would cap the Higher Education Loan Program (HELP) indexation rate, eliminating about $3 billion of student debt, wiping student debt for many Australians who are being crushed by the cost-of-living crisis.

The capped rate would ensure indexation matched either the Consumer Price Index (CPI) or Wage Price Index (WPI) — whichever was lower — after Australians were slugged the 7.1 per cent student debt increase in 2023.

The record increase was based on CPI, whereas under WPI, the debt spike would have only been 3.2 per cent.

The government said it would backdate the change — which formed part of the May federal budget —  to student loans from June 1, 2023.

"This will wipe out around $3 billion in student debt from more than three million Australians," Clare said in a statement. "The Universities Accord recommended indexing HELP loans to whatever is lower out of CPI and WPI.

"We are doing this, and going further."

All HELP debts that were indexed in 2023 and would be subject to indexation on June 1, 2024, would get an indexation credit, the government said. A person with an average HELP debt of $26,500 would have about $1200 cut from their outstanding loans this year under the change, pending legislation passing.

The credit for someone with $130,000 in student debt would be almost $5900.

The backdated change would apply to Australians with HELP debt, VET Student Loans, Australian Apprenticeship Support Loans and other student loans that existed on June 1, the government said.

"By backdating this reform to last year, we're making sure that apprentices, trainees and students affected by last year's jump in indexation get this important cost-of-living relief," Skills and Training Minister Brendan O'Connor said in a statement.

In March this year, Independent MP Dr Monique Ryan launched a campaign to update, modernise and equalise the HECS system. Her online petition has since received over 23,000 signatures —and, it seems, has affected change. 

Speaking with Mamamia in April, Dr Ryan said she started the petition because students and graduates kept talking to her and writing to her office, sharing their stories of struggling to deal with HECS debts.

"So many people have $30,000 or $40,000 HECS debts — debts which in many cases are rising faster than they can be paid off. The petition [went] a bit viral... that's not surprising to me. University used to be free, but now some people are saddled with decades of debt for getting educated. It's a broken system," she explains.

"What's so frustrating is how unfair this is for the next generation. The next generation is going through a cost-of-living crisis and a housing crisis — we shouldn't give them a HECS crisis as well."

The petition had a confirmed victory, with 288,147 signatures — just the sort of pressure and clear community interest the government could not ignore.

"I'll be disappointed and surprised if we don't see changes to HECS in the May Budget," she told Mamamia in April, ahead of the latest announcement. "When we do see those changes, we'll know that it will be because hundreds of thousands of Australians stood up, spoke up and demanded change."

- With AAP.

This article was originally published on April 3, 2024 and has since been updated with new information.

Feature Image: Canva.