Millions of Australians are expected to be hit with hikes in their HECS repayments amid skyrocketing inflation.
Student loans, known as HECS-Help, are not charged interest. Instead, the full amount is indexed to inflation each year.
They are often labelled a “good debt” – being far cheaper than other types of debt.
Over the past decade, the average indexation rate was just shy of 2 per cent, however as inflation has skyrocketed, the indexation rate has, too – last year, it hit a decade high of 3.9 per cent.
In 2023 it is forecast to be even higher and could reach 7 per cent, impacting repayments from June. The actual figure won’t be known until April 26, when the Australian Bureau of Statistics reveals the March quarter inflation figures.
WHAT CHANGES MEAN FOR AUSTRALIANS WITH HECS DEBT
The changes don’t necessarily mean all Australians with HECS-Help debt will have their repayments increased. It will depend on how much a person’s income is. What will change is the total debt level due to increased inflation.
Any indexation will impact the part of student debts which haven’t been paid over the past 11 months.
WHAT TO DO IF YOU HAVE HECS DEBT
Australians who are still paying back their student loans can look for the total amount owed on the ATO website.
Employers should already deduct a percentage of an income from your pay cheque to go towards your debt automatically.
This is pay as you go withholding (PAYGW) which is applied to a financial year’s income tax return once it has been calculated.
Australians who earn above $48,361 and use PAYGW can monitor how much they’re repaying on payslips or on the ATO’s website.
Voluntary payments can also be made and are credited directly against the loan balance once the ATO has processed it.
HOW MUCH ARE PEOPLE PAYING BACK
Australians earning at least $48,361 from 2022-23 have to begin their loan repayments on a scale dependent on their income.
This starts at a one per cent repayment rate for those at the bottom end and hits a five per cent rate at an income of $79,207.
The repayment rate continues to climb to 10 per cent for anyone whose income is over $141,848.
REALITY OF CHANGES REVEALED
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.
WHAT IS BEING DONE TO CURB REPAYMENT PRESSURE?
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.
A proposal to abolish the indexation on $74bn of student debt has been put on ice after a parliamentary inquiry recommended the bill should be scrapped.
The senate’s higher education legislation committee tabled its report on Monday into the Greens push, which also included raising the minimum repayment income to the median wage.
It noted while there was a need to ease cost-of-living pressures, the inquiry’s Labor majority was unconvinced of the proposal’s merit and deferred discussions on higher education affordability to the Universities Accord process.
“While the committee agrees that measures should be taken to ease the cost-of-living burden on Australians, it is unclear whether the measures proposed in the bill will achieve this effectively,” the report said.
Of particular concern was the “uncosted financial implications”, which according to departmental evidence “could be in the order of $2bn, and $9bn for ongoing revenue effects”.
In its own report, Coalition senators called the proposal “shortsighted”.
The looming indexation is set to affect more than 3 million Australians who currently have taken out a HECS loan in order to study.
According to an analysis of ATO data by the Parliamentary Budget Office, more than $74bn is currently outstanding on student loans.