Laws introduced to federal parliament on Thursday will cap the indexation rate for HECS at either the rate of inflation or the wage price index, whichever of the two is lowest.
The move came after students were slugged with a 7.1 per cent increased in their student debts in 2023 following surging inflation.
Education Minister Jason Clare said the changes would mean the large rise of the past year had been removed.
"We're wiping out what happened last year and make sure that it never happens again," he told parliament on Thursday.
"(The changes) will provide significant relief for people with a student debt while continuing to protect the integrity and the value of the student loan system, which have massively expanded tertiary access for more Australians."
Students with an average HECS debt level will see a reduction of $1200 on their loans.
Those with a debt of $45,000 will see a reduction of about $2000, while students with $60,000 owning will have debt lowered by $2700.
The reforms followed the release of the Universities Accord, a wide-ranging review of the tertiary sector handed down in February.
The laws will also allow university students undertaking practical work as part of their degrees to receive payments during their placements.
The changes will provide significant relief for people with student debt, Jason Clare says. (Mick Tsikas/AAP PHOTOS)
Students in degrees such as nursing, midwifery social work will receive an allowance of $319 per week.
"A lot of students tell me that when they do their prac, they have to give up their part time job or they've got to move away from home or work fewer hours," Mr Clare said.
"(The payments) will give people who signed up to do some of the most important jobs in this country a bit of extra help to get the qualifications that they need.
"This is practical support for practical training."
Funding for fee-free university courses as a bridging course between schools and tertiary education is also part of the reform.
But opposition education spokeswoman Sarah Henderson said there was no certainty for students as to when refunds would be handed down.
"After months of delays, Education Minister Jason Clare has sold out three million Australians by failing to provide any certainty as to when refunds will be delivered," she said.
"Jason Clare must legislate the refund date, no ifs or buts."
Greens education spokeswoman Mehreen Faruqi also hit out at the changes, labelling it as a PR stunt.
She said student debt needed to be removed entirely for those at universities.
"What Labor is proposing is trimming around the edges, throwing around fancy numbers and pretending to help ordinary people when they're not," she said.
"Student debt is another cost for millions of people trying to make ends meet on top of so many other cost-of-living pressures.
"A cost that can and should be erased if Labor just wiped student debt entirely."
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