More HECS interest won't fix cost: experts

Fiddling with interest rates on student debt to save the government money could backfire and blow a $2 billion hole in the budget each year, experts warn.

They're also worried hiking the interest on existing debts will make people lose confidence in the loans system.

A plan to charge interest on HELP debts in line with the long-term government bond rate instead of the consumer price index is one of the most unpopular aspects of the higher education reforms.

Bruce Chapman, the architect of the income-contingent loan system, and colleague Tim Higgins have proposed alternatives they say would be fairer.

But the pair told a senate committee on Thursday the cost to government of keeping low interest rates on debts was a minor part of the overall expense.

The main cost is the amount of student loans never expected to be repaid.

Each year, $1 billion of new loans given to students is effectively written off.

"If fees double, you would probably expect doubtful debt to also double," Dr Higgins told the committee hearing in Canberra.

"Moving to real indexation deals with a part of the problem but not with the main source of cost."

Dr Higgins also urged the government to only apply any indexation changes to new students, rather than existing debts as planned.

He likened it to having a fixed-rate home loan.

"If the bank said to me, `we're going to fix it at five per cent' and two years later, while I was still in contract, they said, `actually we're now going to change it to seven per cent', I'd lose confidence in the bank," he said.

"In the same way, I think students will lose confidence in HECS (HELP) if suddenly the rules are changed."