University graduates are unlikely to see financial relief after a parliamentary committee rejected a proposal to freeze student debt.

More than three million Australians have a student debt and around 1.5 million have debts greater than $20,000.

The higher education loan system is also tied to inflation, meaning loans increase each year in line with the consumer price index, currently at 7.8 per cent.

Greens senator Mehreen Faruqi proposed a bill to effectively freeze existing student debt, currently totalling around $74 billion, by scrapping indexation. 

The bill would also raise the minimum repayment income threshold to the median wage of about $62,400.

The former coalition government reduced the minimum repayment threshold to $48,361, which is $6000 above the minimum wage.

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

But after hearing evidence from student unions, graduate associations, university representatives and people with lived experience of the impact of debt, the committee recommended the Senate not pass the bill. 

“While the committee agrees that measures should be taken to ease the cost-of-living burden on Australians, it is unclear whether the measures proposed in the bill will achieve this effectively,” committee chair and Labor senator Tony Sheldon said.

The committee said a comprehensive review of the expense of higher education in Australia was needed, and noted a universities review process was examining access, opportunity and affordability.

But Senator Faruqi said the government was choosing inaction and making life harder for millions of Australians, saddling students with a debt akin to a “tax for life”.

She said the committee’s report overstated concerns about the bill, gave criticism “undue prominence” and argued the government’s university review would take years to complete.

“Student debt is an immediate and growing problem that must be addressed now, people cannot afford another round of brutally high indexation,” she said.

“The government can’t keep pretending that the system is working. They can’t keep sitting on their hands or kicking the can down the road.”

In a joint submission to the committee, the education and employment departments said changes to the minimum repayment threshold could have a significant cost to the budget and taxpayers in the long term.

The departments argued ending indexation would create inequities in the system and disadvantage students who had already repaid their loans. 

But Senator Faruqi said the student loan system was already deeply unfair and caused immense financial and emotional stress for many young people. 

“The current system is crushing dreams of study and making people regret their decision to pursue higher education,” she said. 

“That is a devastating indictment for a system apparently designed to promote access to higher education.”

By Maeve Bannister in Canberra