Reform call as student debt hiked by thousands of bucks

People with student loans will see a steep jump in their debt but are being told it's not as bad as it looks, with thousands to be wiped off the bottom line in the coming months.

HECS debt will increase due to indexation - where inflation figures are used to increase the amount to reflect what the cash is worth in today's dollars - on Saturday.

It will go up 4.7 per cent after a 7.1 per cent increase last year.

This means the average debt will increase by $1245 to $27,739 this year.

Education Minister Jason Clare
Education Minister Jason Clare says HECS debts will drop later this year. (Lukas Coch/AAP PHOTOS)

But new laws to be moved in parliament later this year will reduce this year's rate down to four per cent and last year's down to 3.2 per cent.

The change will apply the lower of the consumer price index - which is inflation - or the wage price index, backdated to June 1, 2023.

The added increases were "based on the old unfair system that we are fixing", Education Minister Jason Clare said.

"To fix it we have to pass legislation," he said.

"That will happen later this year and when that happens your HECS debt will drop."

A person with an average student debt of $26,000 will see a reduction of about $1200 while someone with a $45,000 debt will save around $2000.

The changes form a part of the government's response to a landmark report into the tertiary education sector that seeks to make universities more accessible.

Independent senator David Pocock
Senator David Pocock is concerned many students are accumulating 'skyrocketing debt'. (Mick Tsikas/AAP PHOTOS)

The collective increase of about $3.7 billion in HECS-HELP debt will hit around three million people on Saturday.

Anyone with a HECS debt is required to start repayments once their annual income exceeds $51,550.

Independent senators have called for mandatory contributions paid throughout the year to be deducted from the outstanding balance before indexation is applied.

Under the current system, payments withheld throughout the year are only deducted at the end of the financial year, after the debt is adjusted on June 1.

"The government could, and should, have acted to change when indexation is applied so that people are not indexed on amounts already repaid," independent senator David Pocock told AAP.

"They chose not to and now Australians already suffering from a cost-of-living and housing crisis are paying the price."

Independent senator Tammy Tyrell also called for indexation to not be applied to amounts already paid off.

Independent Senator Tammy Tyrrell
Independent Senator Tammy Tyrrell says students will see their debts go up before they come down. (Mick Tsikas/AAP PHOTOS)

"Students ... will see their debts go up before the hundreds or thousands of dollars they've paid throughout the year taken into account," she said.

"Indexation needs to happen after the yearly repayments are taken off the debt. It doesn't matter what the rate of indexation is if the system doesn't work."

Senator Pocock also wants the government to scrap the job ready graduates program that tried to funnel students into courses that would address skills shortages and resulted in hikes to other degrees.

The university accord report branded it a failure and recommended it be scrapped. It tilted the overall cost of higher education more towards students and away from the federal government, it found.

"That is a big reason for skyrocketing debt for so many students," Senator Pocock said.

The accord's recommendations will be responded to in tranches, Mr Clare said.