A new report says slashing the income threshold at which student debts need to be repaid could raise $500 million in a year.

The Grattan Institute report recommends reducing the repayment threshold from $54,126 to $42,000 to help reign in rising student loan debts under the current Higher Education Loan Plan (HELP).

Grattan Institute Higher Education Program Director Andrew Norton said the HELP scheme did not ensure part-time workers, students who complete vocational education diplomas and dual income couples repay their loans.

"What this will do will be to ensure some of the longer-term part-time workers do eventually repay their debt in a way they won't under current policy," he said.

"People who work part-time, long-term, as a second income earner — we think they're a large share of the people who are currently not repaying who could afford to do so.

"What we're really hoping to do is target what the Government calls doubtful debt ... [that is the] 20 per cent of all the money lent each year they expect won't be repaid under current policy."

The report found between 2014-2015, of the $7.8 billion the Government lent to students, an estimated $1.6 billion will not be repaid.

Higher education 'won't be impacted'

Mr Norton also said the cut to the threshold would not harm the delivery of university education.

"We think this kind of cut won't actually have negative impacts on higher education and therefore it's a higher quality way of saving money," he said.

In a written statement Federal Education Minister Simon Birmingham said lowering the HELP repayment threshold is being considered.

"Since 2009, with the demand driven system, taxpayer funding for Commonwealth supported places in higher education has increased by 59 per cent as compared to 29 per cent growth in nominal GDP over the same period of time," he said.

"Funding of university students has, essentially, grown at twice the rate of the economy.

"I welcome all ideas from the sector, experts and students on how to make university funding sustainable."

Recommendation would hit those struggling: Opposition

Opposition Education spokesman Senator Kim Carr said the implementation of the recommendations would negatively affect young people who are already struggling.

"It is aiming at trying to get people that are increasingly being faced with the prospect of lower starting salaries for graduates, people who are required to work part-time at much lower salaries," he said.

"As a consequence, it would mean that the individual would have to pay a lot more."

Mr Norton recognised the proposed lower threshold may be difficult for some young people but said it was still fair.

"It will be tight for some people," he said.

"Even though $42,000 is a lot less than now, it's still comfortably above the kinds of thresholds applying to people on government benefits.

"It's much higher than minimum wage, so compared to other kinds of government income protection it's still relatively generous.

"It's not really clear why graduates should get an extravagantly generous scheme compared to a whole lot of other Australians."