About $3 billion to be slashed from student debt for more than three million Australians

With Labor under increasing pressure to ease the cost-of-living crisis and help young people struggling to break into the property market, the measure – to be outlined in this month’s federal budget – will mean the average university debt will shrink by $1200.

Someone with $100,000 owing on their student loans would have almost $4,500 cut from their balance.

The changes, which require legislation, will cap student loan indexation to the lower of the consumer price index or the wage price index.

Crucially, it will be backdated to June 1 last year, with credits offered to students who were slapped with a 7.1 per cent loan index.

Last financial year, the average HELP debt of $26,500 jumped by $1881.50. If the debts had been tied to the WPI instead, they would have only paid 3.2 per cent on the loan – or $848.

The change follows a recommendation from the Universities Accord for government to make changes to the way HELP indexation functions, and a petition led by independent Kooyong MP Monique Ryan that garnered 288,000 signatures.

Dr Ryan, who has been pressuring the government for months, welcomed the announcement and declared it a “win”.

“Hundreds of thousands of Australians with HECS debts have worked hard to pay them off in recent years, only to see the size of their debts stay the same or – worse still – increase. It was a broken system. I’m glad the government has changed it,” she said.

The change will apply to all HELP, VET Student Loan, Australian Apprenticeship Support Loan and other student support loan accounts that existed on 1 June last year.

Education Minister Jason Clare said the move would provide “significant relief” to those with student loans amid the fight against inflation.

“This will wipe out around $3 billion in student debt from more than three million Australians,” Mr Clare said.

“This will wipe out what happened last year and make sure it never happens again.”

Skills and Training Minister Brendan O’Connor said by backdating this reform to last year, the government was ensuring last years’ indexation jump would receive cost-of-living relief.

“This continues our work to ease cost of living pressures and reduce and remove financial barriers to education and training,” he said.

“These changes make sure that help is provided on a fairer basis.”

Deputy Opposition Leader Sussan Ley on Sunday morning said the Coalition would “do our due diligence” before it decided whether to support or oppose the legislation.

“Of course we care about students. Of course we want their lives to be better,” she told Sky News on Sunday.

“We know how hard they’re doing it under this government.”