‘Dishonest and cruel’: Tax bomb for student debts
Millions of Australians who are diligently paying back their university loans are staring down the barrel of a whopping 7.1 per cent increase to their debt before their repayments are even counted, thanks to a quirk of the tax system blasted as “fundamentally unjust”, “dishonest” and “cruel”.
For most people with a HECS debt a percentage of their earnings is held aside from each pay slip to pay back the loan, but in reality those dollars aren’t deducted from the debt balance until tax time.
Greens Senator Mehreen Faruqi described the repayment process as “fundamentally unjust”, warning a “debt avalanche is just days away” on June 1 when indexation is applied.
“Desperately needed money is being taken out of people’s pay slips to pay off their student debt when they’re on really low incomes, that they could be using to pay for rent, medicines, and food – and I know that many young people are skipping meals to pay their bills,” she said.
“The system is so unfair and unjust and cruel.”
The senator has been advocating to freeze indexation and to raise the minimum repayment wage, but discussion of her proposed bill was blocked during the Senate’s final sitting week before the June 1 deadline. Foundation for Young Australians CEO Nick Moraitis also said the current HECS repayment system is unfair.
“Indexation is applied to student debts at the level the sum was at the beginning of the 2022-23 financial year, instead of reflecting the reduced balance graduates have been paying off in real time,” Mr Moraitis explained.
“Young students and graduates losing part of their wage every payday … would reasonably expect the Australian Taxation Office to … reduce their HECS debts as they’re paid.”
An ATO spokesperson confirmed pay-as-you-go amounts withheld are paid directly to the ATO, but the real amount owed is calculated only after an income tax return is filed.