Why Australia's HECS-HELP system is under pressure

When the Higher Education Contribution Scheme (HECS) was launched in Australia in 1989, it marked the end of 15 years of free university education and intended to address increasing demand for university places.

The initial system charged a flat annual fee of A$1800 per year, deferred until graduates earned A$22,000, with repayments starting at 1 per cent of income and rising to 3 per cent for incomes above A$35,000.

The rationale for asking graduates to contribute to the cost of their education was clear from the start, says Bruce Chapman AO, emeritus professor of economics at Australian National University and architect of the original system.

“If universities were entirely free, most taxpayers, who never go to university, would be footing the bill for a relatively privileged minority,” he says. “Graduates tend to do well, so asking them to contribute is fair.”

But even early on, the assumption that higher education would reliably lead to steady, continuous earnings did not match how people’s working lives unfolded. Career breaks, part-time work and patchy labour market participation mean the repayment capacity looks very different from person to person, even among graduates with similar qualifications.

The result? For some, what was supposed to be a fair, income-contingent system now feels like a lifetime financial burden. As Susan St John, economist and honorary associate professor at the University of Auckland, notes: “When you look at the life course of many women who may spend a decade out of the workforce and then return part-time, it becomes clear they may never fully repay their student debt.”

Debt mindset

From the outset, the HECS system created a guaranteed funding base that allowed the university sector to expand two-and-a-half to three times its original size and “made higher education accessible, fair and financially sustainable,” says Bruce Chapman.

Almost four decades later, things look markedly different. HECS was formally absorbed into the broader Higher Education Loan Program (HELP) umbrella in 2005, and average graduation debt now sits at close to A$27,600 as of 2025. Fees vary sharply Australians collectively owe around A$81 billion.

For many graduates, this has changed how the debt actually feels. Instead of being a distant obligation that quietly gets taken off tax returns, HECS-HELP debt is now something professionals actively think about when they are making big decisions, whether that is applying for a mortgage, starting a family or changing jobs.

What used to be framed as a deferred cost has become something that directly shapes financial choices.

Mark Chapman FCPA, director of tax communications at H&R Block, says HECS-HELP debts should be considered as part of an overall financial picture.

“For professional advisers, this means considering how repayment thresholds interact with income growth, how lenders treat HECS-HELP obligations when assessing borrowing capacity and whether voluntary repayments make sense relative to other financial priorities.”

Rising costs

At first, HECS-HELP fees increased steadily but not alarmingly. That changed in 2020 with the introduction of the Job-ready Graduates Package, a sweeping reform that more than doubled fees for many humanities subjects, while the cost for STEM, nursing, education and health courses were reduced.

“Previously, the system broadly aligned costs with expected earnings: degrees that typically led to high-income careers, such as medicine, dentistry and law, carried higher student contributions, while lower-paying fields were more affordable,” says Bruce Chapman.

“Under the new structure, humanities students, who are statistically among the lowest-paid graduates and disproportionately female, now face some of the highest annual charges. In some cases, their fees exceed those of students training for far higher-paying professions, including medical specialists.”

The result is a system that is difficult to justify on equity grounds. “Students with the least financial return are being asked to take on the most debt,” he says. “It is really very unfair.”

While steps have been taken to address rising costs, including a 20 per cent reduction in student debt in 2025, Bruce Chapman argues that a blanket cut was not the most effective way to fix the flaws.

 

"The most important point about HECS-HELP is that if you do not have the money and you have got a debt, you do not have to pay. That is extremely important."

 

“I think the 20 per cent reduction was an acknowledgement that the pricing is wrong,” he argues. “But I do not think blanket debt forgiveness was the best solution. The better approach would have been to reset course fees to where they were before, when they were much fairer.”

Other suggestions to help people manage the rising level of debt have been put forward, including one from University of Canberra Vice-Chancellor Bill Shorten who has proposed a 1 per cent levy on company profits, estimated to raise billions of dollars a year.

Shorten argues that businesses benefit directly from a skilled graduate workforce and should contribute to the cost of training employees. Without such contributions, he says, the financial burden falls more heavily on graduates and taxpayers.

Critics remain unconvinced. Many note that small and medium enterprises employ few graduates, yet would still be affected by the levy.

“University research benefits the entire community and should be funded through general tax revenue,” says Bruce Chapman.

Moving the goalposts

The vulnerabilities brought on by higher fees were not immediately apparent. Indexation held at 1.8 per cent in 2020 and fell to 0.6 per cent in 2021. But because HECS-HELP debts are indexed to CPI, bigger balances get hit harder when inflation goes up. And if indexation is higher than what is being repaid in a given year, the debt can grow — even with regular repayments.

The surging inflation post-pandemic made this clear. In 2023, HECS-HELP debts were indexed at 7.1 per cent, which was the highest rate in decades, adding more than A$1960 to an average A$27,600 balance in a single year.

Mark Chapman says the issue is often less about the absolute size of the debt and more about uncertainty. “For younger professionals, rising indexation creates a sense that the goalposts are moving and that undermines confidence in longer-term financial planning.”

That uncertainty carries real financial consequences. Lenders factor HECS-HELP repayments into borrowing capacity assessments because the compulsory repayment reduces disposable income, he argues. “Repayment income is broader than many people realise.

 

"For younger professionals, rising indexation creates a sense that the goalposts are moving and that undermines confidence in longer-term financial planning."

 

It includes taxable income but can also include items such as reportable fringe benefits, reportable superannuation contributions, net investment losses and certain tax-free income,” Mark Chapman says.

This environment has also shifted thinking around voluntary repayments. “Historically, voluntary repayments were relatively uncommon because HECS-HELP debts do not attract interest in the conventional sense and there were repayment discounts,” he says. “But periods of higher inflation changed that conversation.”

The 20 per cent reduction in 2025 further altered behaviour: some borrowers deferred repayments in anticipation of the cut, while others used the change as an opportunity to reassess broader financial strategies, including mortgage planning and savings goals.

Mark Chapman notes that repayment decisions should be weighed against other financial priorities, particularly when indexation or policy changes occur. “In many cases, directing additional funds toward higher-interest debt or long-term investments may make more sense than accelerating HECS-HELP repayments.

But the calculus can change when indexation rises or when government policy adjustments occur.”

Global student schemes

While Australians might be feeling the pinch, St John says that New Zealand’s alternative student loan scheme is far more punitive and features a repayment threshold of just NZ$24,128; less than half of Australia’s recently restored A$67,000 threshold. Once graduates earn above the low threshold, a fixed portion of their income is automatically taken in loan repayments.

“It is incredibly harsh for low-income people and is effectively like having an extra 12 per cent on your tax rate,” she says. Many students are also ineligible for a student allowance because their parents earn over a low threshold, and so many students are borrowing for their living costs as well as fees.

While the student loans do not attract interest while the graduate remains in New Zealand, St John argues it has “allowed the government to push more debt onto students” and can even benefit higher-income families as it allows them to take an interest-free loan while only repaying the original amount.

Across the globe, student loan systems vary widely. Bruce Chapman says most countries in Asia, North America and South America use systems where graduates repay fixed loan amounts regardless of their income level. Unlike HECS-HELP-style schemes, these loans do not protect borrowers when earnings are low.

“The most important point about HECS-HELP is that if you do not have the money and you have got a debt, you do not have to pay,” he says. “That is extremely important.”

In Malaysia and Hong Kong, systems tend to combine public subsidies with loan schemes or scholarships, but repayment conditions are often less flexible than in Australia. In many cases, repayment begins shortly after graduation, regardless of income level, which can also tighten financial pressure in the early years of working life.

In contrast, the principle behind Australia’s system is to preserve access through deferred fees, while ensuring that graduates who succeed in the labour market repay the cost over time, says Bruce Chapman.

“I will be honest — I was not sure it was the right approach at the start, but it has ended up working reasonably well in practice. Now, the course prices just need to be fixed.” 

Some students in Australia are sidestepping rising HECS-HELP debt altogether by starting with government-funded Technical and Further Education (TAFE) courses.

Certificates and diplomas can often be credited toward a university degree, reducing both the number of units required and the overall cost. For example, Victoria University offers a Certificate IV and Diploma of Accounting under the Free TAFE program for eligible students, providing a pathway into a bachelor degree without upfront tuition fees.

Similar options are available nationally, with fee-free courses in Queensland and subsidised courses in priority sectors such as agriculture, community services and technology in Tasmania.