Student loans

Millions of Australians in debt face ‘stressful’ rise in days

Australians who have yet to repay their student debt are set to suffer the biggest rise in repayments in a decade.

HECS-HELP loans are widely considered to be the least important debt to repay because the loans do not bear interest like a credit card or mortgage.

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But what many former students may not realize is that the loan amount is adjusted each year by the indexation rate to take into account inflation, which last month reached its worst result in more than two decades.

This year’s indexation is expected to be the worst in 10 years as student debt is hit by a 3.9% increase from June 1, compared to just 0.6% last year.

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

splash the money

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

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

“In recent years, the jump has been quite small,” Whitten said, adding that the pandemic, rising energy costs, war in Ukraine and rising interest rates were among the factors that had an impact on the outbreak.

While some students and graduates are alarmed by the rise, Whitten said it reminds them not to forget the debt.

“Know this is a bit more of a jump than previous years,” he told 7NEWS.com.au.

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

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

This year’s indexation rate is expected to be the worst in 10 years as student debt is hit by a 3.9% increase from June 1, up from just 0.6% last year. Credit: australian tax office

University student Eloise Hartill, who is currently studying for her Juris Doctor in Melbourne, is among those affected by the hike.

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

“The increase is very stressful for me because I already knew that I would already have to pay around $40,000 upfront to complete my degree, which is stressful enough.

“I think it’s been hit much harder because, due to COVID restrictions, students have access to fewer university resources and are spending a lot of time studying from home or online.”

Although she knows she won’t need to pay off her debt instantly, Hartill worries about the impact it will have on her later.

“I’m studying 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 university debt” , she said.

“It’s something that’s crossed my mind before and the major raise only makes it worse. I’m worried about my ability to buy a house and have some savings when I graduate. at 24 years old.

In for money

Nearly 3 million people with HECS-HELP debt will be affected by the increase, but Whitten said there was no question of panicking and rushing into repayments.

Recent data has shown 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’ll have a lot more debt, so 3.9% is a big jump,” said Whitten, who works as a home loans editor at comparison site Finder.

Despite this, he said student loans are still “the least urgent debt anyone probably has.”

“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, home loans. Even if you have no real debts, but buy now pay later, focus on that first.

Australians who have yet to repay their student debt are set to suffer the biggest rise in repayments in a decade.  File picture.
Australians who have yet to repay their student debt are set to suffer the biggest rise in repayments in a decade. File picture. Credit: Parinda Yatha / Eye Em/Getty Images/EyeEm

For those with cash in reserve, Whitten suggests considering increasing the amount of your salary before the cut.

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

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

“If you have a little money and maybe you think you’re investing for a better return.”

It all depends on your financial personality and how comfortable you are with debt, he said.