Australian graduates face a multimillion-dollar markup on university debts that they have already discharged because of a timing quirk in the processing of repayments.

Former students are required to pay off their ÖйúAƬ Loan Programme (Help) debts through a top-up to their tax, which is typically collected by their employers each pay period and sent to the Australian Taxation Office (ATO).

These additional repayments are not subtracted from loan balances until graduates have lodged their tax returns on or after 1 July, and the ATO has used that information to calculate each debtor¡¯s repayment obligation for the year.

With Help repayments indexed on 1 June each year, this means the previous 11 months of repayments are included in the balances used to calculate the annual increases to students¡¯ outstanding debt.

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The anomaly has not mattered much in recent years?because Australia¡¯s low inflation rate kept annual indexation at around 2 per cent or lower. But this year¡¯s indexation, applied today, will raise outstanding debts by 7.1 per cent ¨C the biggest hike since 1990.

Graduates on annual wages would each have paid back about A$5,640 (?2,975) of their student debts last year. The timing anomaly means about A$5,170 of these repayments will be overlooked when authorities calculate the new loan balances ¨C costing each graduate around A$367 in extra indexation.

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The National Union of Students said the arrangement demonstrated the Help system¡¯s shortcomings during times of high inflation. ¡°All of a sudden, we¡¯re hit with a 7 per cent increase that hasn¡¯t been looked at in a long time in terms of how that functions,¡± said national president Bailey Riley. ¡°We think it¡¯s pretty evident that it needs some reworking to avoid situations like this.

¡°Most students aren¡¯t even aware how indexation works in the first place, and then there¡¯s things like this on top of it. Students are just not being educated properly about their debt.¡±

An ATO spokesman said Help repayments were processed in ¡°the exact same way¡± as regular ¡°pay as you go¡± (PAYG) tax instalments. ¡°The money taken out is not used to immediately repay your debt but held as a credit by the ATO until you lodge your tax return at the end of the financial year.

¡°For the process to change, there would need to be significant change to the legislative framework under which PAYG is operated.¡±

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Help is widely regarded as one of Australia¡¯s best innovations, bankrolling a huge expansion of ÖйúAƬ without allowing tuition costs to be a barrier to admission or saddling graduates with unmanageable debt. The approach has been copied in around a dozen other countries.

But some commentators believe the system¡¯s repayment settings need tweaking because rising fees and inflation expose some groups of debtors to hardship. Others want a total overhaul, with debt indexation eliminated or tuition made free.

john.ross@timeshighereducation.com