On June 1, HECS-HELP debt will increase by 7.1%. This is the highest rate in 32 years and almost double last year’s rate. Many are calling for a ‘freeze’ on indexation of student debt.
Last month, Greens Senator Mehreen Faruqi introduced a bill proposing a “freeze” as well as a raise in the minimum income before repayments are required. The Senate Education Legislation Committee has since recommended the Senate reject this proposal.
So there are a lot of numbers, and the potential for change isn’t looking great.
But what does indexation actually mean, anyway? If you have a HECS-HELP debt, here’s what you need to know.
Which types of loans are impacted?
Students that enrol at a higher education institution with a Commonwealth supported place subsequently take out a HECS-HELP loan to complete their studies. This means the government has paid the relevant tuition fees upfront, which the student will then repay once their income reaches a certain threshold.
HECS-HELP loans are the most common form of student debt, however indexation also applies to VET Student loans, the Student Financial Supplement Scheme, Student Start Up Loans, ABSTUDY Student Start Up Loans, and Trade Support Loans.
How are HECS-HELP loans repaid?
Currently, the compulsory repayment threshold sits at an income of $48,361 and the minimum repayment rate is 1%. Once the individual’s income hits this minimum threshold, the relevant amount will be calculated through that year’s tax return. The maximum repayment bracket stipulates 10% for incomes of $141,848 or higher. Voluntary repayments can also be made to the ATO.
Wait – aren’t HECS-HELP loans interest-free?
While interest is not technically charged on student loans, debts are indexed to inflation. This means that every year, in accordance with increases in the cost of living, the full amount of each HECS debt is increased by a certain percentage. This year, that number is 7.1%. This is almost double the next highest increase from the past decade, which was 3.9%.
A report from Futurity Investment Group found that the average HECS-HELP balance currently sits at $22,636. Applying this year's indexation rate to the average debt would add around $1600. The report also found that it currently takes the average person 9.5 years to repay their HECS debt – a timeframe which has been steadily increasing for the past 15 years.
What now?
Students and graduates are feeling the pressure as a portion of their income goes to paying a debt growing faster than they can pay it off, as the cost of living continues to rise.
This is why the National Union of Students and the Australian Greens have been advocating for a “freeze” on indexation of student debt.
Over three million Australians are impacted by student debt, and many are feeling cheated over loans that were advertised as being “interest-free”, saying that it’s unreasonable to expect 18-year old school leavers to fully comprehend the implications of a student loan, especially when many are pressured into going to university by family and teachers.
A report published by the parliamentary committee in response to the Greens’ bill said that the proposed legislation would cost the government around $2 billion over the next three years, warning the Senate that it should be scrapped. It suggested that discussions about affordability of tertiary education in Australia should be directed to the Australian Universities Accord process, established late last year.
In the meantime, we students can advocate for change in the hope that the government might ease this $74 billion burden that’s on the shoulders of students. Oh, and maybe don’t check your HECS balance too often.