More than three million Australians with student loans are being warned to brace themselves for a super-sized increase to their debt in the coming months.
The debt, known as HECS-HELP, is not charged interest. Instead, the full amount is indexed to inflation each year. It’s often labelled a “good debt” that’s far cheaper than other types of debt.
Over the last decade, the average indexation rate was just shy of 2 per cent. But as inflation skyrocketed, the indexation rate has too. Last year, it hit a decade high of 3.9 per cent.
This year, it is forecast to be even higher and could reach 7 per cent. The actual figure won’t be known until April 26 when the Australian Bureau of Statistics reveals the March quarter inflation figures.
For Jessica Currie, who borrowed north of $45,000 to complete her undergraduate and postgraduate studies, it means around a third of her compulsory repayment will be eaten up by indexation.
“This year my compulsory repayment will be roughly $3300, and the indexation will amount to $1120,” she told NCA NewsWire.
“It doesn’t pass the pub test for me …. the ‘real value’ of my education to the Australian economy isn’t a dollar figure when the compulsory repayment and the indexation are so closely aligned.”
Ms Currie isn’t alone. Two-thirds of the submissions to a recent Senate inquiry were from people distressed over their debt.
“It makes me feel hopeless and dumb for signing up for courses I never use,” an anonymised submission from an accountant at a law firm said.
Their debt had reduced by just $30 last year despite making a voluntary repayment on top of the compulsory figure, thanks to the decade high indexation rate.
In another, a young woman estimated it would take four decades to repay her debt: “If I could go back and speak to my seventeen-year-old self, I’d tell her to run.”
According to an analysis of ATO data by the Parliamentary Budget Office, outstanding HELP debt currently stands at $74bn.
Treasury estimates, included in last year’s budget papers, say it now takes a person on average 9.6 years to repay their student loan.
The Greens, backed by the National Union of Students, are calling for the government to abolish the indexation and raise the minimum repayment income to the median wage, which sits at $62,400.
Deputy Greens leader Mehreen Faruqi, who introduced the bill to parliament last year, called the current system “unfair and unsustainable”.
“Combined with low wages, university fee rises and a very low minimum repayment income threshold we are in a student debt crisis,” she said.
“It’s making it harder for people, many of whom are already working multiple jobs to make ends meet, to put food on the table, buy medicine and pay rent.
“Just because Treasurer Jim Chalmers tells us the system is fair and working, doesn’t make it so. The HECS-HELP system was never designed to operate as it does now.”
Universities Australia chair Catriona Jackson told the inquiry it would not support the removal of the indexation and expressed caution about raising the minimum repayment thresholds.
“There is enormous cost-of-living pressure, but the one thing that is not increasing in the next two weeks or in the next months for students is their HECS debt,” she said.
“It is, of course, true that CPI indexation means that the debt will get bigger over time. But that means they’ll be repaying it for longer.
“That does not mean they’re paying more immediately, and it’s really important to make that distinction, because students have enough to worry about without worrying about this as well.”
While the government is not considering a pause or removal of the indexation ahead of the May 9 budget, the education minister conceded “affordability is a real issue”.
“That’s why I have asked the Universities Accord team to look at it,” Jason Clare told NCA NewsWire.
“It’s important to remember that HELP loans are not required to be repaid until a person reaches the income repayment threshold. HELP repayments are a set percentage based on your income. They don’t go up unless your salary does.
“It’s built on a really important principle – you pay what you can afford. And you don’t pay more unless you earn more. It’s this system that has helped the number of Australians with a university degree jump from 7.9 per cent to 32 per cent in the past 30 years.”
The Senate inquiry will table its report into the bill next week. The Universities Accord is set to be handed down in December.