The federal government’s policy to cut 20 per cent of outstanding student debt will primarily benefit high-income earners, provide very different levels of debt relief to similar individuals, and do little overall to accelerate HELP debt repayment, according to economic modelling by the e61 Institute, which also finds a simple tweak could reduce the unfairness of the change.
The new e61 note is the first piece of research to rigorously assess the distributional consequences of the 20 per cent student debt cut using real-world income, university enrolment and HELP repayment data. It identified three lessons for the 2025 debt cut.
The first lesson from the note was that over half the total benefits of the debt cut will flow to individuals who will end up in the top third of income earners within 10 years, while less than 20 per cent will go to those who will remain in the bottom third of income earners.
The reason higher-income earners will do better out of the Albanese Government’s policy is straightforward, said e61 Research Economist Matthew Maltman. “Most HELP debt is held by university graduates, who have much higher lifetime incomes than the average taxpayer. And even if you look within graduates, those with more costly degrees tend to go on to earn higher incomes in the future,” Mr Maltman said.
The report noted that while Job Ready Graduates had significantly increased the cost of some humanities degrees with lower earnings potential, many of the highest cost degrees remain in high earning fields such as law, medicine, dentistry and commerce.
“You could make the argument that we need to provide debt relief to humanities students in a targeted way because of Job Ready Graduates. But the current policy isn’t at all targeted and that means it’s going to give a very large amount of debt relief to future lawyers, dentists and doctors who are going to go on to enjoy very high lifetime incomes,” said Mr Maltman.
“This is particularly important when you consider the huge cost of the policy at $16 billion. That’s almost as much as we spend on the JobSeeker payment each year,” said Mr Maltman.
The second lesson from the modelling was that the size of the debt relief individuals receive will depend almost as much on their graduation year as degree choice – with similar individuals who studied the same degree at slightly different times receiving extremely different levels of debt relief.
“Our modelling suggests that individuals who left university in 2024 will on average receive twice as much debt relief as those who left only four years earlier in 2020, and two and a half times as much as those who will leave four years later in 2028,” said e61 Senior Research Economist Jack Buckley.
Mr Buckley said that the reason the policy created this debt relief lottery was because most students accumulate HELP debt quickly as they study and then begin to repay that debt once they graduate. “If you cut 20 per cent of each individual’s balance, it means two very similar people will receive very different amounts of debt relief simply because one finished their degree in 2024 and the other finished a few years earlier or later,” said Mr Buckley.
The last lesson the research note identified was that the policy will be largely ineffective at bringing forward the moment at which all student debt is repaid. “If you simulate the effects of a 20 per cent cut on HELP debt holders, you find that for 80 per cent of recipients, the year in which they repay their debt is unchanged. This indicates that, in terms of delivering cost-of-living relief or easing financial pressures on young people, the benefits of the policy are likely to be modest,” said Mr Maltman.
The e61 note also found that a small tweak to the policy – changing the 20 per cent debt cut to a flat-dollar amount of debt relief per student of around $5,500 – would significantly improve its equity and impact on repayment timing, while still cutting 20 per cent of total student debt.
“Moving to a flat-dollar debt relief policy would mean that each former student with a HELP debt receives the same amount of support, or has their debt wiped, regardless of whether they studied law or teaching, or whether they graduated in 2023, 2025 or will graduate in 2027,” said Mr Buckley.
A flat debt cut would also help more individuals pay off their HELP debts earlier, according to the modelling in the report. “We estimate that about 35 per cent of debt holders would make their final repayment in an earlier year, compared to 20 per cent under the current approach. This could help increase incentives to work for individuals around the current repayment thresholds,” said Mr Maltman.
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