Explainer: how will the changes to HELP student loans affect you?

Federal Education Minister Simon Birmingham has unveiled big changes to the Higher Education Loan Program (HELP). With about A$50 billion in outstanding student debt, the goal is to curb costs.

Assuming parliament passes the changes, all students will have to pay more and repay quicker. The changes affect current and future debtors.

How much more will students pay?

Students will pay 7.5% more in fees by 2021 – on top of the annual inflation indexation.

For example, a student studying teaching currently pays $6,349 a year. Next year they will pay about $6,600.

Overall, by 2021, students will pay between $2,000 and $3,600 more for a four-year course. They will have to pay 46% of the cost of their tuition, up from 42% now.

When will students start repaying

Under the current system, from 2018-19 graduates would have to start repaying their HELP debt when their income reached $51,957.That threshold will now fall to $42,000.

While this change has attracted criticism, a Grattan Institute report last year showed that even with a $42,000 threshold, HELP is still more generous than many other forms of government income protection.

The new threshold is, for example, 20% more than the minimum wage. And people on Newstart lose their eligibility when they earn about $26,000.

The higher your income, the more you will repay

Under the new system, graduates will be required to pay 1% of their income once they start earning $42,000, and the rate will increase by 0.5 percentage points for each 6% increase in salary.

The more you earn, the bigger the proportion of your salary you will have to pay.

Under the current system, once graduates reach the income threshold of $51,957 from 2018-19, they will have to repay 2% of their income – about $20 a week.

Under the new system, once graduates reach the income threshold of $42,000, they will have to repay 1% of their income. That is, about $8 a week.

Under the old system, the maximum repayment rate was 8%, which applied to incomes above $107,213. Under the new system, the maximum rate will be 10%, which will apply to incomes above $119,881.

So a graduate who earns $120,000 will repay 10% rather 8% of their income. That is, an additional $46 a week. The new rates will speed up repayments from high-income earners.

Repayment thresholds will keep their real values

The government is also changing the way the thresholds are indexed.

At the moment, the repayment thresholds grow at the same rate as Average Weekly Earnings. Since Average Weekly Earnings have been rising faster than inflation, the repayment thresholds have been increasing in real terms.

In fact, the thresholds are about 17% higher than they would have been if indexed to inflation since 2005.

As a result, the HELP debtors of today enjoy significantly higher living standards than their predecessors before having to repay their loan.

This is not the case for recipients of other government programs. Thresholds for many other government benefits are generally indexed to inflation.

It is not clear why HELP should have a more generous indexation policy than other programs that generally affect more vulnerable Australians.

Under the new HELP system, from mid-2019 repayment thresholds will grow in line with inflation. Since earnings and inflation growth are currently similar, the practical effect is likely to be small in the short run. But over the long run, the new indexation arrangements will ensure repayments keep their real values.

The rules are also changing for some students who are not Australian citizens

Under the current system, most students who are permanent residents but not citizens of Australia, and most New Zealand students, have access to subsidised higher education places, however they must pay their fees upfront.

Under the new system, they will have to pay full price but will have the option of deferring the cost through HELP.