It is tough news for Australians servicing student loans as the latest indexation to be applied will be the highest in the last three decades. The government does not charge interest on student loans but does apply an annual adjustment that keeps the debt in line with the rising cost of living. In recent years, the indexation has averaged around 2% but has now risen to a staggering 7.1%, in line with CPI figures from April. It is estimated that with an average HECS-HELP debt of $25,000, borrowers can expect to see their loans increase by $1,775.
The indexation that keeps student debt tied to inflation will be applied to over $74 billion in outstanding loans, heightening the debt burden to about $80 billion. Since student debt is also assessed similarly to other consumer debt in determining a borrower’s ability to repay a loan, this change is expected to affect future debt-to-income ratio calculations, compromising many borrowers’ capacity to access lending such as mortgages.
There are currently over 3 million Australians servicing student loans, and with their debts indexed to the current high inflation levels, it means that many will suffer increases that will rise faster than they can make repayment. According to a report by the National Tertiary Education Union, some student loan repayment periods can extend up to 44 years. This has been attributed to the high student debt indexation and increases in course fees.
The opposition is calling on the government to take urgent action on the matter. The opposition education spokeswoman, Sarah Henderson, has accused the education minister, Jason Clare, of being tone-deaf to the cost of living crisis being faced by Australians. She is urging the government to consider what options can be offered to young people to help them pay down their debts.
Independent federal member for North Sydney, Kylea Tink, also called on the government to make this review a priority and has recommended tying indexation to the RBA’s weighted mean instead. She noted that both sides of the backbench were aware of the issue and that the government would likely receive broad support in making changes.
Clare has however defended the government, stating that much had been done to relieve the cost of living pressures in the budget by boosting the rate of government support payments and rent assistance. He added that the Australian Universities Accord was due to submit a final report in December on a range of issues including accessibility and affordability of higher education.
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