How one Aussie racked up an incredible $737,000 in debt – as students are warned they are about to be hit by a massive increase in their loans
- Three million Australians have student debt
- Loans indexed to CPI, expected to be 7.1 percent this year
- Australia’s largest HELP loan is $737,000
Uni students and college graduates are about to be hit with a massive increase in their student loans, including one person who managed to rack up more than $700,000 in debt.
About three million Australians had some form of student debt in June 2022, totaling about $74 billion.
The largest current debt owed as a result of a HELP loan in Australia is $737,000, according to the Australian Revenue Service.
On June 1 each year, government loans – including HECS-HELP loans taken out to fund university studies – are indexed according to the consumer price index (CPI).
This year, the CPI is expected to be about 7.1 percent
This means that the balance of everyone with a student loan will automatically increase by 7.1 percent on 1 June.
For the person with the largest HECS debt, that would add about $52,000 to their loan.
On June 1 each year, government bonds — including HECS-HELP loans taken out to fund university studies — are indexed according to the consumer price index (CPI) which is expected to be about 7.1 percent this year. Photo: NCA NewsWire/Nicholas Eagar
- Shouldn’t HECS loans be interest free?
Millions of Australians took out HECS-HELP loans when they enrolled in a university course.
It’s common for students to shrug off debt as something they’ll “pay off later” once they start making serious money, and they can take as long as they want because it’s “interest-free.”
Although HELP debt is interest-free, it increases each year to “stay in line with changes in the cost of living”, the ATO website is reading.
About three million Australians had some form of student debt in June 2022, totaling about $74 billion
Someone who is still paying off a 2013 HECS debt has already seen their debt increase 10 times.
The annual indexation rate stayed below 2.6 percent until a big spike to 3.9 percent last year, before rising to the eye-watering 7.1 percent in June.
- How to avoid getting hit by the increase
For most debt holders, there isn’t much that can be done to avoid the hike over the next seven days.
Paying off the remaining debt balance is the only way to avoid being hit by the indexation, but depending on a person’s individual circumstances – how much they still have to pay or how much money they have in savings, for example – this can be a challenging task.
The majority of people pay off their student debt through mandatory payments that are deducted from their paychecks at a rate specific to the amount of money they earn.
Anyone with student debt will be automatically increased by the CPI rate of 7.1 per cent on the first day of June (pictured, University of Queensland)
Voluntary payments can be used to pay off debt faster, but are not an option for many low-income earners.
Cost-of-living pressures make it hard enough to stay on the weekly budget without factoring in extra student loan payments.
When the finish line is in sight, it may be worth paying off the last debt.
The ATO deadline for submitting payments prior to indexation – May 25 – has already passed.
While those with the least residual student debt are arguably best placed to get out before indexation, they are also at the highest risk of losing out.
Someone who is still paying off a 2013 HECS debt has already seen their debt increase 10 times
Despite being within reach to pay off their loan, there is a cohort of former students who continue to pay off debt for months after they would have paid it off without indexation.
- Can I just not pay off my debt?
HECS debt is written off when a person dies, and it was once possible to avoid debt by moving abroad long enough.
So while it is possible to avoid paying off your student debt, it will make life more difficult when you are assessed on your ability to pay off other loans, such as a mortgage, later.