Australia’s government has overhauled student loan repayments and forgiven billions of dollars of student debt but is yet to fix a glitch that forces graduates to pay interest on money they have already repaid.

Independent senator David Pocock has accused the government of sitting on its hands over a longstanding tax office practice of crediting borrowers for months of repayments only after their loan balances have been indexed.

“It is indefensible that no work is being done to address the timing of indexation on student debt,” Pocock told ̽����Ƶ. “There is no other financial sector in which we could accept Australians being charged interest on monies already repaid.”

Graduates typically discharge their tuition fee debts thorough a top-up on their fortnightly tax. The Australian Taxation Office (ATO) tallies these additional payments once a year, after tax returns are submitted from 1 July, and subtracts the totals from debtors’ outstanding balances.

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However, student debts are indexed on 1 June each year, which means borrowers must pay indexation on the previous 11 months of repayments.

This situation, which has prevailed for years, sparked outrage in 2023 after the indexation rate hit a 33 year-high of 7.1 per cent. The timing quirk meant that year graduates on average wages were charged �����dzܳ�����$367 (£183) for indexation on discharged debt.

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The problem remains unresolved 30 months later, despite the government’s big-ticket changes to student debt. They include raising the repayment threshold by almost one-quarter, switching to a simpler marginal system of repayments, and relinquishing 20 per cent – up to A$16 billion – of the accrued debts of more than three million graduates.

Early childhood minister Jess Walsh highlighted this “substantial body of reform” when Pocock asked what had been done to fix indexation timing – as recommended by the Australian Universities Accord – during the last Senate estimates hearing of the year.

“If a bank charged you interest on repayments you had already made, that would be illegal,” Pocock told the 4 December hearing. “Surely that’s a fairly simple change that the ATO could have done by now.”

Walsh said the government was “working our way through” the accord’s recommendations. She did not respond to Pocock’s request for an “indicative timeline” of the indexation change.

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Asked about the issue almost two years ago, the ATO said any change to the timing of student debt indexation would require “significant legislative and system redesign”.

Pocock also asked Education Department officials whether the position of Mary O’Kane, chief commissioner of the interim Australian Tertiary Education Commission (Atec), remained “tenable” following her appointment as University of Queensland chancellor.

Pocock said the Atec role gave O’Kane an “under the hood” view of her future competitors. “Someone who is going to one of the universities…in the meantime is going to be seeing how all of them are operating.”

Department secretary Tony Cook said he had advised O’Kane to recuse herself from work involving funding allocations or Queensland universities. “I also reminded her of her obligations under her terms of appointment in relation to conflicts of interest,” he told the hearing.

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“I anticipate there will be continuing conversations with Professor O’Kane about her role.”

Pocock told THE that the issue risked derailing the interim Atec’s efforts to unravel the costs of teaching and learning. He said the agency needed access to university data “to effectively undertake this work” but universities also needed confidence in the security of their “commercially sensitive information…and that policies are being shaped without any bias”.

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john.ross@timeshighereducation.com