How one Aussie racked up an incredible $737k uni debt – as students are warned they are about to be hit with a massive increase in their loans
- Three millions Australians have a student debt
- Loans indexed to CPI, expected to be 7.1 per cent this year
- Largest HELP loan in Australia is $737,000
Uni students and people with degrees are about to get hit with a massive increase to their student loans, including one person who managed to rack up more than $700k in debt.
About three million Australians had some form of student debt as of June 2022, totalling about $74bn.
The largest current debt owed as a result of a HELP loan in Australia is $737,000, according to the Australian Tax Office.
Every year on June 1, government loans – including HECS-HELP loans taken out to help pay for university study – are indexed in line with the consumer price index (CPI).
This year, the CPI is expected to be about 7.1 per cent
It basically means the balance of anyone with student debt will automatically increase by 7.1 per cent on the first day of June.
For the person with the largest HECS debt, that would add roughly $52,000 to their loan.
- Aren’t HECS loans supposed to be interest free?
Millions of Australians took on HECS-HELP loans when they enrolled in a course at university.
It’s commonplace for students to shrug off the debt as something they will “pay off later” once they start earning serious money, and they can take as long as they like because it’s “interest free”.
While HELP debts are interest free, they do increase every year to keep “in line with changes in the cost of living”, the ATO website reads.
Someone who is still paying off a HECS debt from 2013 will have already seen their debt increase 10 times.
The annual rate of indexation stayed below 2.6 per cent until a major spike to 3.9 per cent last year before climbing to the eye-watering rate of 7.1 per cent this June.
- How to avoid being hit by the increase
For most debt holders, there isn’t a lot that can be done in the next seven days to avoid the increase.
Paying down the remaining balance of debt is the only way to avoid getting hit by the indexation but dependent on a person’s individual circumstances – for example how much they have left to pay or how much money they have in savings – this could be a challenging task.
The majority of people pay off their student debt through compulsory payments deducted from their salary at a rate specific to the amount of money they earn.
Voluntary payments can be used to pay down the debt faster but are not an option for many low-income earners.
Cost of living pressures are already making it hard enough to stay on top of the weekly budget without having to factor in additional payments to a student loan.
- The bigger losers
If the finish line is in sight, paying down the last of the debt may be a worthwhile decision.
The ATO deadline for lodging payments ahead of the indexation – May 25 – has already passed.
While those with the least remaining student debt are arguably in the best position to get on top of it before the indexation, they are also at the greatest risk of losing out.
Despite being within reach of paying off their loans, there is a cohort of former students who will have to keep paying off debt for months after they would have paid it off without the indexation.
- Can I just not pay off my debt?
HECS debt is written off when a person dies, and it was once possible to dodge the debt by moving overseas for long enough.
So while it is possible to avoid paying off student debt, it will start to make life more difficult when being assessed for your capacity to pay off other loans like a mortgage down the track.