The Albanese Government has promised to cut 20% of outstanding student debt. Using administrative tax and HELP repayment data linked to university completion records, we assess the potential short- and long-term impact of the policy by simulating what might have happened had such a cut had been implemented in 2012 instead of 2025.

We identify three lessons for 2025:

1. The size of debt relief depends almost as much on graduation year as degree choice. Our analysis suggests that individuals who leave university in the year the policy is implemented will receive a debt cut that is more than twice as large as individuals who left only four years earlier, or four years later. This raises concerns about the horizontal equity of the policy because otherwise similar individuals who studied the same degree at slightly different times receive very different levels of debt relief.
2. The policy will do little to accelerate debt repayment. In our simulation, only 20% of affected individuals with student debt pay off their loans even a year earlier due to a 20% debt cut. Most either still repaid their debt in the same year (35%) or hadn’t yet repaid it within the 10-year period we observe (45%) (this is largely driven by individuals who were still studying in 2012).
3. Most of the benefits of a student debt cut will go to future high-income earners. In our analysis, over half the benefits of the student debt cut go to individuals who ended up in the top third of all income earners 10 years later. Less than 20% went to those in the bottom third of income earners. This raises vertical equity concerns because a student debt cut disproportionately benefits individuals with very high lifetime incomes, and not those with low lifetime incomes.

Is there a better way to cut 20% of student debt?

Although we do not endorse a student debt cut, if the Government is determined to proceed with the policy, there is one small adjustment they could make that would significantly reduce its unfairness. That adjustment would be to cut 20% of all student debt by cutting each debt holder’s balance by an equal flat-dollar amount of about $5,500 (20% of the average debt), rather than cutting 20% of each individual’s balance as proposed under the current policy. We show this alternate debt cut would be an improvement on both horizontal and vertical equity grounds, and would help more young people clear their debts faster.