Australians who are yet to pay off their student debt are about to be slugged with the largest increase to their repayments in decades.
HECS-HELP loans are widely regarded as the least important debt to pay off, as the loans do not accrue interest like a credit card or mortgage.
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But what many former students may not realise is the loan amount is adjusted each year by the indexation rate to account for inflation, which is set to jump a considerable amount in June 2023.
Mortgage brokers estimate the hike will be about 7 per cent.
According to Australian Taxation Office (ATO) data, more than three million people had an outstanding HECS-HELP debt in 2021-22 totalling more than $74.3 billion.
These university graduates are set to be slugged with a $4.5 billion increase to student debt as of June 1.
The rise in student loans, resulting from high indexation tied to the rate of inflation, will result in an increase of approximately $1500 to the average $25,000 debt, the National Student Union suggests.
“In 2023, young university graduates will be the worst affected by the largest increase in student debt indexation in decades,’’ the NUS said in a submission to a Senate hearing last week, which examined how student debts are making it harder for young people to buy a home.
“Students and graduates need immediate financial support to combat the cost-of-living crisis by pausing indexation on HELP debt repayments.’’
The indexation rate is applied to the part of an accumulated study and training loan that has remained unpaid for more than 11 months.
Universities Australia chief executive Catriona Jackson said university students and graduates were struggling with the cost of living.
“A student loan doesn’t immediately hit your hip pocket like other loans,” she said.
“Unlike a mortgage or car loan, you don’t pay interest on a student loan, and you’re only required to make repayments when you earn above a certain salary. Inflation does drive up the ultimate size of a student loan, extending the period over which it is paid off.”
The ATO is expected to announce the indexation rate in May.