While HECS or HELP loans don’t attract interest like a credit card, they are linked to inflation through a process called indexing.
This year, the indexation rate is expected to be around 7 percent, according to a model shared by Green senator Mehreen Faruqi.
On an average student loan of $25,000, this would add an additional $1,500 in debt.
The income level at which Australians are required to start repaying their HELP debt also rises with inflation: for the income year 2022–23 it was $48,361.
“In 2023, young college graduates will bear the brunt of the largest increase in student debt indexation in decades,” the National Union of Students said in a submission to the research.
“Students and graduates need immediate financial support to combat the cost of living crisis by stopping the indexation of HELP debt payments.”
The average time it takes to pay off a HELP debt is now almost a decade: 9.6 years.
‘I doubt I’ll ever keep up’
Victorian teacher Tias Allard, 36, said she was left with a whopping $62,500 in student debt after completing several degrees in psychology and linguistics at university, including a PhD in the latter.
Allard said he initially planned to get a job in psychology, but this hope was dashed when he was not accepted to study for his master’s degree.
His debt, however, remained.
After being unemployed for much of the pandemic, Allard now works as an ESL (English as a Second Language) teacher, which requires a month-long certification course.
If your student loan indexes to the expected rate of 7 percent in June, you’ll be saddled with another $4,375 in debt.
Last year, indexing added 3.9 percent to Allard’s loan, meaning his debt increased even after his annual payments were deducted.
Allard said his student loan was adding to the financial stress he and his partner were feeling.
“Every day I wake up and it’s the new worst day ever to look for a place to live. At the same time, my student debt keeps mounting,” he said.
“I doubt I’ll be able to keep up with the indexing.
“Most of all, I feel stupid for believing what I was told as a kid, that I needed to go to college to get a good job, only to end up in debt that runs up to $2,500 a year because some people who got free education thought that That’s what they thought.” It would be fair to saddle subsequent generations with a lifetime debt for the same privilege.”
Allard said it was especially galling to see his student debt mount so high at a time when wages were stagnant and banks were offering interest rates below inflation levels.
Melbourne mother Chrissie, who asked that her last name not be disclosed, has student debt of more than $65,000.
Not knowing what she wanted to do after finishing school, Chrissie tried many subjects in college.
After dropping out of an arts degree, she later returned as a middle-aged student, completing a communications degree in 2020 during lockdown.
Chrissie, who now works as a copywriter, said she wishes she had understood the financial implications of her student loan from the start.
“It’s like giving a teenager a credit card, at that age you don’t have the financial education you need.
“And you had all these people around you saying, ‘Oh, you don’t even notice when they just take a little bit of your salary.'”
Chrissie said the amount she owed on her HELP loan barely seemed to be going down, despite all her payments.
Now a mother of two young children, Chrissie said she was working less, limiting her potential to make use of her title.
“It doesn’t seem fair to me,” he said.
Debts that affect mortgage loans
The Senate investigation into proposed student loan legislation comes as mortgage brokers say mounting student debt is another hurdle making it difficult for young people to break into the real estate market.
Adelaide mortgage broker Sam Neville of Mortgage Choice said he was now seeing some customers with student loans of more than $100,000.
While the loans were interest-free, and therefore often not considered a priority to repay, they could still affect a borrower’s ability to obtain a home loan, he said.
“This year’s indexing won’t affect your loan payments, because they are based on the income you earn,” Neville said.
“But what it will affect is your debt-to-income ratio.
“So if your HECS debt indexes more than you pay, then your total debt position has increased.
“We’re having a lot more conversations, when it comes to smaller debt, about paying it off before you buy the property, and ironically, using some of your home savings, money that you had set aside for a deposit, to pay off your HECS, for thus their borrowing power increases.
Neville said that one thing about student loans that many people didn’t know was that required repayments weren’t immediately deducted from a student’s or graduate’s balance.
Instead, the Australian Taxation Office kept the value of refunds for the year and only deducted them from the debt once a tax return had been filed and indexation had already been applied.
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