HECS-HELP hell: Your uni debt could jump by $900+ by July
With inflation still high and the annual indexation looming, should you make some extra repayments to your debt?
Update (4 May 2024): the federal government has decided to calculate HECS indexation using the lower of 2 figures: the Consumer Price Index or the Wage Price Index. This decision will be backdated to the previous financial year, meaning the 2023 increase of 7.1% will now drop to 3.2%.
Based on the revised indexation, the average HECS debt of $26,494 will increase by $847 for the 2022-23 financial year. That's over $1,000 less than it was with the 7.1% indexation.
Anyone affected by these changes will receive an indexation credit. You can estimate how much this will impact your student debt using this government estimate calculator.
The indexation coming in June 2024 will be 4.7%.
Original story:
The average Australian tertiary education debt is now $26,494. With the annual consumer price index (CPI) now at 3.6%, that means the average debt could jump by $953 when indexation hits in July.
Although we won't know the actual end of financial year CPI until later in the year, this is going to be a fairly large increase, especially off the back of last financial year's whopping 7.1% increase.
In a recent Finder survey, 12% of Australians said they don't think they'll ever be able to repay their student debt. 63% of respondents said they are either slightly or extremely concerned about their ability to repay their debt.
Should you repay your HELP debt faster?
The general rule of thumb with debt is to focus on high interest, short-term debt first. This means paying off things like credit card and personal loan debt. Or buy now pay later payments, which can come with late fees.
HECS debts don't come with interest charges, but once a year everyone's debt is adjusted upward based on the CPI, which measures inflation.
For many years inflation was low, so this wasn't much of a story. But inflation has been so high in the last couple of years that it has caused much bigger increases to people's student debts.
Making voluntary repayments before indexation is applied can help reduce this increase. But it's important to look at any other debts you have as well.
Example calculation
Let's say you graduated with $20,000 in student debt in early 2022. You weren't earning enough to have repayments taken automatically from your salary.
- The indexation rate in 2022 was 3.9%. Your debt grows to $20,780.
- The indexation rate in 2023 was 7.1%. Your debt grows to $22,255.
- Assuming the indexation rate is 3.6% in 2024, your debt will grow to $23,056 in July.
That's an extra $3,056.
HECS-HELP help… is on the way?
There's a federal budget coming soon. And both the prime minister and the treasurer have hinted that they're looking at helping out students (and graduates) with some sort of indexation reform.
But a modest change to indexation rules might not be enough. A recent government report on the state of the Australian university sector suggested indexing HECS by either the CPI or the wage price index (WPI): whichever of the 2 is lower.
There's only one problem. While it might not feel like it, wages are growing. The WPI is currently 4.2% and the CPI is now 3.6%. So this change might not help much.
We'll know more when the budget is announced.
Check out our helpful money saving tips guide.
