This week more than three million Australians were hit by the biggest increase to student loan debt seen in more than 30 years.
On Thursday, anyone with an unpaid HECS-HELP loan saw their debt rise by a whopping 7.1 per cent – with many of those people being young Aussies.
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 has now almost doubled.
For many people, this year’s indexation means that – despite making thousands in repayments – they now find themselves in the same position or even worse off than they were this time last year.
This is the sobering reality of the HECS system. While it does not accrue interest, it is indexed for inflation every year.
The massive increase to HECS debt is just the latest in a long line of financial woes plaguing Australians, such as the rising cost of living and rental and housing crisis.
And young Australians are, understandably, unimpressed.
Melbourne woman Kate Marning is one of the many people struggling to pay down her debt against increasing indexation rates.
The 27-year-old’s HECS is currently sitting at about $59,000 and, to make that pill even harder to swallow, she also doesn’t have a degree.
“I started studying in 2014 and dropped out in maybe April 2017,” Kate told news.com.au.
“I don’t even have a degree which is the most painful part of having this HECS debt and seeing it increase right when you think you’ve started to chip away at the debt.”
She dropped out of her Bachelor of Entertainment Management at the Australian Institute of Music to take up full time work in the industry.
However, a number of factors, including undiagnosed depression and anxiety stemming from sexual assault trauma, meant Kate failed and re-enrolled in multiple subjects – sending her debt soaring.
“So over three years I’ve paid off approximately $5000. And in one quick foul swoop, more than 80 per cent of that is added back onto my HECS debt,” she said.
“I feel like I’m treading water trying to get ahead of it and never will, unless I sacrifice the savings I’m working really hard for to put it towards my HECS debt so it drops to a level where high indexation won’t outweigh my yearly repayment amounts.”
Kate has been saving towards being able to take six months off work to travel before she turns 30, is also thinking about looking towards buying a home and saving a nest egg to confidently start a family with her partner of five years.
She said having to worry about her HECS increasing faster than she can pay it off “comes at the compromise of [not] being able to enjoy and live my life”.
‘Unethical’ HECS system blasted
Chloe, 26, from Elwood, Victoria, is also feeling the pressure, describing the long term impact of her rising debt and the growing cost of living “frustrating”.
She also lashed out at the “unethical” way repayments were taken off the debt.
While payments towards your HECS debt are taken out of your pay in real time, that money is not coming off your debt at the same rate.
Instead, the Australian Taxation Office holds these funds as a credit until you file your tax return on or after July 1.
But, because indexation occurs before this on June 1, your past contributions are actually applying to the higher indexed rate, despite coming out of your pay much earlier.
“This really needs to be changed by the government to make the system more fair,” Chloe said, adding it was “really wrong”.
“It’s quite disheartening to know most of today’s politicians received their education for free, yet we need to spend tens of thousands to complete higher education degrees to still struggle to find a job and not be paid in line with the cost of living pressures,” she said.
“This indexation is just another huge blow to young people who are already struggling and increasingly giving up on our dreams of financial stability and owning our own homes.”
Brisbane woman Jacque is feeling he pinch as well.
The 30-year-old runs her own small chiropractic business and has a young family, telling news.com.au her HECS has now increased to more than $98,000.
“I don’t think I’ll ever be able to earn enough to pay it off,” she said.
“I have been on maternity leave once and about to go on it again. But in the last eight years working, I’ve gotten nowhere with my HECS. I doubt I’ll ever be able to put a dent in it.”
3m Aussies ‘swept away by a debt avalanche’
According to the Australian Taxation Office, 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 recent 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.
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.”
There have been calls for the Government to help ease the cost of living for young Aussies by pausing indexation this year.
Eight crossbench MPs and senators recently called for urgent intervention to stop millions of Aussies being “swept away by a debt avalanche”.
In their letter to Prime Minister Anthony Albanese and Education Minister Jason Clare, they warned indexation was causing student debts to increase faster than they were being paid off.
“Larger debts take much longer to pay off, with student debt becoming a lifelong burden for too many,” they wrote.
“The growth of student debt disproportionately impacts young people and women, entrenching inequality.”