Down Debt

HECS-HELP debt will jump 3.9%

Australians who have yet to pay off government-funded university and higher education debt are set to suffer the biggest increase in indexation in more than a decade.

Nearly three million people with HECS and HELP debt will have more to repay when the annual indexation rate is applied on June 1.

Since the rate of indexation is closely tied to the rate of inflation, those in debt are expected to experience a surge of 3.9% – up from last year’s rate of just 0.6%.

HECS-HELP debt will rise 3.9% on June 1. (SMH/Flavio Brancaleone)

Ben Nash, founder and financial adviser of Pivot Wealth, said the most concerning factor is that the increase in the indexation rate is greater than the growth in wages.

“When you compare it to wage growth, which is annualized at 2.4%you can see it’s difficult at a rate above wage growth,” Nash told 9News.com.au.

“So that means people are going to have to pay more of their salary to have the same impact.”

Rising inflation should increase your HELP debt by 3.9% on June 1.
Rising inflation should increase your HELP debt by 3.9% on June 1. (ABS)
The HECS-HELP loan amount is adjusted for inflation, also known as the Consumer Price Index or CPI, which is currently at 5.1%.

Nash said that while there would be an increase in HECS debt rate repayments, “in real dollars, it’s not as much as inflation.”

“It’s only slightly positive because the cost continues to rise, but the increases in HECS are not as high as the increases in many other goods and services,” he said.

He said people shouldn’t panic about the rising HECS debt ratio, which over a ten-year period will be less than 2%.

“Do you have other debts that run at higher interest rates? Nash asked.

“Because it’s something important – if people have personal debt or credit cards, you know, the average credit card interest rate is 15%, which is significantly higher than interest charged on HECS.”

On June 1, the average HECS debt is expected to increase by around $1013.

Currently, the average amount of debt each person has is $23,685, up from $23,280 last year.

* Jasmine at UNSW is considering making voluntary contributions towards her $30,000 debt. (PAA)

Jasmine*, who studied an undergraduate degree in media at the University of New South Wales, said she was considering making voluntary contributions towards her $30,000 debt.

“I would only do that if it was strategic to buy a house, you know, because I know the banks take into consideration the repayments you have to make for that debt,” she said.

“I wouldn’t rush to put money into it unless it was, you know, for a very strategic purpose.”

Nash said many people with HECS debt would also be first-time home buyers who need to understand the impacts their debt has on their borrowing capacity.

“I think it’s pretty important because real estate is one of the biggest money moves young people make, so preparing yourself for the best results will make a huge difference to your financial situation over time. “, did he declare.

The financial expert said the key is for people to understand their debt and the compromises they may face.

“You know, if you take one path, what does that mean? What are the positives, what are the less positives? If you take a different path, what does that mean?” he said.

In pictures: the front pages of the federal budget newspaper

“And then you can make a conscious, informed assessment instead of just not thinking about it and postponing it years into the future.”

You can check your HELP debt balance by logging into the ATO service in MyGov.

You can access your HECS-HELP balance on the opening screen, where you have the option to make voluntary refunds.

If your payment arrives after June 1, it will be applied to your balance after the 3.9% escalation has been applied.

*Name changed for confidentiality reasons

The information provided on this website is of a general nature only and does not constitute personal financial advice. The information has been prepared without taking into account your personal objectives, financial situation or needs. Before acting on any information on this website, you should consider the suitability of the information to your objectives, financial situation and needs.