In just over three weeks millions of people across the country, many of them young Australians, are going to be hit with a brutal increase to their student debt.
From June 1, anyone who has racked up a HECS-HELP debt from studying and hasn’t paid it off will be slugged with the biggest increase in decades, with many fearing they may never be able to pay it off.
HECS-HELP debt does not accrue interest, however, it is indexed for inflation every year.
Last year, the indexation rate hit a high of 3.9 per cent, but with inflation skyrocketing, that number is set to almost double.
In just a few weeks, indexation rates will rise to 7.1 per cent, the highest it has been in more than 30 years.
According to the Australian Taxation Office (ATO), 15 per cent of Australians are saddled with student debt, meaning more than three million people are going to be impacted by this increase.
A Finder survey of more than 300 Australians with current student debt found over half were concerned about their ability to repay it.
Worryingly, 14 per cent of respondents said they didn’t think they would ever be able to repay their student debt.
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Graham Cooke, head of consumer research at Finder, warned that increasing student debt could impact the ability of young Aussies to break into the property market.
“Inflation is causing headaches for almost all Australians, and former students are no exception,” he said.
“Our high inflation rate means more interest will be charged against student debt than we have seen in decades. No doubt the effects will be significant.
“Many Australians with plans to get on the property ladder or take out any sort of loan in the future will find it extremely difficult as lingering student debt is a massive liability.”
The national average HECS-HELP debt is $23,685, but there are those who have debt well into the hundreds of thousands of dollars.
In March, the ATO revealed the highest 100 HECS-HELP debts in the country, with one person owing an astronomical $737,070.48 to the Government.
The person with the second highest student debt owes $495,990 and more than 25 people owe over $250,000.
For many Aussies working to pay down their student debt, seeing their repayments making less of an impact is incredibly disheartening.
A case study example by Finder shows a 25-year-old graduate with an outstanding HECS-HELP debt of $28,287 made a compulsory repayment and voluntary contribution of $2969 during the 2021-2022 financial year.
On June 1, 2022, they saw $1103 added to their loan – meaning, their loan only decreased by $1866.
In just over three weeks, this former student will see a further $1876 added to their outstanding $26,421 loan.
Even making a predicted $3375 in compulsory repayments will only see the debt decrease by $1499.
There have been calls for the Government to help ease the cost of living for young Aussies by pausing indexation this year.
Finder’s RBA Cash Rate survey last month asked 29 economists whether the Government should intervene on indexation, receiving a largely split response, with 55 per cent against intervention and the rest for it.
Those who were against halting indexation claimed it was not fair to favour certain sectors over others and that those with student debts were not in need of as much support as others in the community.
“University graduates are highly paid and already heavily subsidised. To give them assistance would be highly regressive,” Stephen Miller from financial institution GSFM said.
Lateral Economics CEO Nicholas Gruen suggested the move would be “discriminatory” and said the Government shouldn’t waste resources on “people who don’t need it”.
University of Sydney’s Stella Huangfu also noted that, while pausing indexation rates would ease young Aussie’s debts in the short-term, such a move could hurt the government budget in the long-term.
“In my opinion, the long-term cost dominates the short-term benefit,” she said.
Meanwhile, those on the opposing side of the argument claimed people who were just starting out in their careers needed more support.
Mala Raghavan from the University of Tasmania said the cost of living pressures are more “acute” for young Australians.
“Therefore, alleviating the cost of living pressures requires easing financial stressors on this group,” she said.
Other respondents believed indexation should be matched to the cash rate not the CPI, with Queensland University of Technology’s Noel Whittaker saying it is “unfair” to have debt indexed at more than the normal lending rate.