'Discouraging' increase looming for student debts

University graduates with student debt are facing a significant increase to what they owe, as the high rate of inflation bites balances.

But a Greens push to address the looming hike by abolishing indexation, effectively freezing student debt, will be rejected by the federal government.

The proposed bill would have raised the minimum income repayment threshold to the median wage of about $62,400, up from the current $48,361.

Labor MP Tony Sheldon, who chaired the parliamentary inquiry that examined the proposal, said the committee did not believe the measures would address cost-of-living pressures effectively. 

He pointed to the government's universities review currently underway which would examine access, opportunity and affordability of higher education.

But registered nurse Lucy Day-Williams, 25, feels she is repaying a debt she didn't sign up for. 

Ms Day-Williams graduated with a nursing degree in 2020 with a student debt of just over $42,000.

She started full-time work soon after graduating and has since made compulsory re-payments of $4500. 

But Australia's student loans system is tied to inflation, meaning loans increase each year in line with the consumer price index and Ms Day-Williams' debt HECS balance remained at just over $40,000. 

"I'd never really checked my balance other than once a year at tax time," she told AAP.

"It felt like I had made a small dent but it was increasing at a higher rate than I could pay off."

The most recent data showed inflation sitting around 6.8 per cent and graduates have been warned to expect a hike to their debts when loans are indexed on June 1. 

Ms Day-Williams decided to get ahead of the curve and made a voluntary $20,000 repayment from her own savings. 

"I decided that I didn't trust the debt wouldn't continue to increase and I didn't want to be paying off a huge amount of money for the rest of my life," she said.

"As a nurse we earn very little as it is so I just decided that instead of having to pay money I didn't sign up for when I chose to study, I would make a payment to try and reduce the amount indexed but it still exists."  

Ms Day-Williams is not alone. More than three million Australians have a student debt and about 1.5 million have debts greater than $20,000.

On June 1, the total value of HECS loans is set to increase by $4.5 billion, with the average debt projected to increase by $1700.

The Australian Taxation Office confirmed the average time to repay a debt had increased from 7.3 years in 2005/06 to 9.5 years in 2021/22. 

The National Union of Students said the committee had "palmed off" the student debt crisis to the government's universities accord process with no guarantee HECS indexation would be addressed.

National president Bailey Riley said the time for government action was now, not years into the future when students were thousands of dollars further in debt. 

Ms Day-Williams said indexation on uni debts felt like a punishment for studying and it could deter people from tertiary education. 

"As a frontline worker it is an added frustration that we already work in an under-staffed, critical environment with low wages and yet we're also expected to pay off this debt that is ever increasing," she said.

"We're paying a lot more than we bargained for and it's really discouraging."