Millions of Australians with student debt face ‘stressful’ surge within days

Australians who have yet to pay off their student debt are about to see their biggest payment hike in a decade.

HECS-HELP loans are widely considered the least important debt to pay off, since the loans do not accrue interest like a credit card or mortgage.

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But what many alumni may not realize is that the loan amount is adjusted each year based on the indexation rate to account for inflation, which hit its worst result in more than two decades last month.

This year’s indexation is expected to be the worst in 10 years as student debts take a hit with a 3.9 percent rise since June 1, up from last year’s rate of just 0.6 percent.

So what does this mean for your outstanding loan and should you rush to pay it off?

splashing the cash

The indexation rate applies to the portion of an accumulated education and training loan that has remained unpaid for more than 11 months.

Finance expert Richard Whitten said the annual adjustment is influenced by the cost of living, which has soared this year.

“Over the last few years, it’s been a pretty low jump,” Whitten said, adding that the pandemic, rising energy costs, the war in Ukraine and rising interest rates were among the combination of factors that affected the increase.

While some students and graduates are alarmed by the increase, Whitten said it served as a reminder not to forget about debt.

“Keep in mind this is a bit of a jump from previous years,” he told 7NEWS.com.au.

“A lot of people don’t think about the cost while they’re in college and when they graduate.

“They don’t think about it until they have to start paying it off, but it’s good to know that the debt is there and growing. With high inflation, it will grow faster than you think.”

This year’s indexation rate is expected to be the worst in 10 years as student debts take a hit with a 3.9 percent rise since June 1, above last year’s rate just 0.6 percent. Credit: Australian Tax Office

University student Eloise Hartill, who is currently studying Juris Doctor in Melbourne, is among those interested in the walk.

“This is my fourth of six years in college. My debt is currently around $30,000 just from my undergraduate degree and by the end of this year, it will be around $70,000,” he told 7NEWS.com.au.

“The raise is very stressful for me because I already knew I would have to pay about $40,000 up front to finish my degree, which is stressful enough.

“I think it has been affected much more because, due to the COVID restrictions, students have access to fewer university resources and spend a lot of time studying from home or online.”

While she knows she won’t need to pay off her debt right away, Hartill is concerned about how it will affect her in the future.

“I study full time while living away from home so I can attend the best law school in Australia. I’m already struggling to support myself let alone start paying off my college debt,” she said.

“It’s something that has already crossed my mind and the big increase only makes it worse. I am concerned about my ability to buy a home and have savings when I graduate at 24.”

Get value for your money

Nearly 3 million people with HECS-HELP debt will be affected by the increase, but Whitten said there was no reason to panic or rush into payments.

Recent data showed that the average HELP debt balance was $23,686 in fiscal year 2021. This suggests that the average person’s debt would increase by about $920.

“If you have more than that, you’re going to have a lot more debt, so 3.9 percent is a big jump,” said Whitten, who works as a mortgage loan editor at comparison site Finder.

Despite this, he said student loans remain the “least urgent debt someone is likely to have.”

“It depends on the person, but most financial experts would say don’t worry about it,” Whitten said.

“It also depends on other debts: personal loans, mortgage loans. Even if you don’t have any real debt, but buy now and pay later, focus on that first.”

Australians who have yet to pay off their student debt are about to see their biggest payment hike in a decade.  stock image
Australians who have yet to pay off their student debt are about to see their biggest payment hike in a decade. stock image Credit: Parinda Yatha / EyeEm/Getty Images/Eye Em

For those with extra money on hand, Whitten suggests thinking about increasing the amount paid out of your salary before the cutoff.

“If you’re worried about that or have a lot of debt, that’s something to consider,” he said.

“If you pay a little before June 1, you will minimize that debt. Some people benefit from that, but for most it’s more about being aware of the increase than an urgent need to pay.

“If you have a little money and you could think about investing to get a better return.”

It all comes down to your financial personality and how comfortable you are with debt, he said.

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