The Abbott government’s changes to interest rates on student loans could prompt legal challenges from current and former students, raising a further hurdle to higher education reforms, legal experts have warned.



Students and graduates who are yet to pay off their loans face higher interest rates from June 2016 if the federal government succeeds in passing legislation to cease indexation at the consumer price index and instead apply the 10-year bond rate.



The education minister, Christopher Pyne, who will face a battle to secure Senate approval for his university overhaul, said it was “perfectly fair for parliament to change the treatment of Help debts from one measure to another” and the government had received legal advice about its power to do so.



But legal experts have told Guardian Australia it is possible that the way students agree to the commonwealth assistance could constitute a legal contract, which may affect whether changes can be made retrospectively to interest rates.



When students take out student loans they are required to complete a request for commonwealth assistance form that outlines how the government will provide loan assistance. The form says student debts will be “indexed annually in line with the act”, and the act references the consumer price index to calculate the payable interest.



Justin Malbon, a professor of law at Monash University who specialises in consumer law, said there was an “arguable case” that a contract existed between students and the federal government for student loans, but said it was far from a black and white case.



“For a contract you need an offer, acceptance and consideration. The question is what is the return for. You get the money and the government benefits because they have to pay less out of the public purse for universities,” he said.



“At its heart there's an arguable case that it is a contract, and there’s an arguable case that taking into account the terms of the original legislation that they cannot later come along and unilaterally vary the contract to add in terms that never existed in the first place.”



But even if a contract was found to exist, Malbon stressed it was difficult to determine how a case would be decided and added that the way the federal government amended the legislation was also an issue.



“The other thing is we don’t know what the new legislation is going to say, we don’t know how they’re going to do it yet,” he said.



Dilan Thampapillai, a lecturer at the Australian National University college of law, also said it might be possible for students to argue that a contract existed with the federal government.



“I think that there is an ... argument that the filling out of the request for commonwealth support and Hecs-Help form and the subsequent provision of funds for study by the commonwealth does give rise to a contract,” he said.



“I would suggest that the request for commonwealth support and Hecs-Help form is the basis for the contract.”



He said the question was whether an assurance that there would be no change in the interest rate was incorporated into that contract. “It might well be,” he said.



Thampapillai added that it was “not clear which way a court would rule” and said: “The counter-argument is that providing the request for commonwealth support and Hecs-Help form and having it filled out by the students is merely an incident of the administration of the statutory scheme. This would militate against the existence of any contract.”



The Greens have calculated that graduates who had been in the workforce for five years could face additional interest payments of between $2,000 and $7,000 over the remainder of their loan. The impact varies depending on people's personal circumstances.



Guardian Australia sought official modelling about the impact on students and graduates, but Pyne said the government had “no plans to release detailed modelling as it may have commercial implications within a deregulated market”.



Pyne added that the change in indexation would “only have a small impact on the average weekly repayments of graduates”.



“Replacing the indexation rate with the rate at which the government has to borrow the money that it lends to students is perfectly fair,” Pyne said.



The economist Bruce Chapman, who designed the Hecs program in the late 1980s, disagreed. Chapman said the government-provided “real interest subsidy” was a key feature of the system, ensuring that loans were only adjusted to reflect inflation.



“Why was that there? It's for equity,” he said.



“Thirty per cent of people do not graduate and they do not as a result get good jobs. A lot of people, particularly women, will spend time out of the labour force, child-rearing, or people will have accidents and have bad luck and end up in poor jobs.



“The interest rate subsidy is there for protection. When you think Hecs you've got to think about insurance all the time. That's what it is – it insures you against bad luck. Once you put a real interest rate on that, that's gone.”



A separate threat looming over higher education is the possibility that the current funding arrangements set up by the federal government could face a constitutional challenge, according to constitutional law expert George Williams.



The recent school chaplains high court decision has raised concerns over commonwealth funding of a number of schemes, and a second decision relating to the chaplains funding is expected by the end of the year.



“The whole area of federal funding is in a great state of uncertainty,” Williams said. “There’s no general power to pass laws over universities. What the commonwealth has been hanging its funding on is that universities are trading corporations, which the commonwealth does have power over, but that’s never been tested.”

“So if some enterprising person wanted to challenge whether universities are trading corporations, that could be an issue.”

