Today, more than 3 million Australians woke up to the news that their student debt has increased due to inflation. On average, their loans have risen by over $1,000, which is causing concerns about their future borrowing capabilities. This increase, called indexation, is at the highest rate in over 30 years, currently set at 7.1%. The impact of this affects both HECS-HELP and vocational education loans, totalling over $74 billion. If you have a HECS-HELP debt, you may have questions about how this will affect you. Let’s address some of those concerns.
Normally, the annual indexation rate for HECS-HELP debt is around 2%. However, as of June 1, 2023, it has jumped significantly to 7.1%. This means that your debt will increase at a faster pace than it has in previous years.
The increase in HECS-HELP debt can have implications for your borrowing capacity. When you apply for other loans, such as mortgages, banks and lenders treat your HECS-HELP debt like any other personal loan or credit card debt. It is taken into account when they evaluate your ability to handle additional debt. Your debt-to-income ratio, which compares your debt obligations to your income, will include your HECS-HELP debt. This could potentially affect your eligibility for future loans.
Paying off a HECS-HELP debt takes time. On average, it takes nearly a decade to fully repay the debt. In some cases, it can take as long as 40 years. These extended repayment periods can have long-lasting effects on your financial situation. They may limit your flexibility in managing your finances and could delay important life goals, such as purchasing a home.
Considering the upcoming increase in HECS-HELP debt due to inflation, it is clear that over 3 million Australians will face challenges in managing their debts. With loans rising by over $1,000, borrowers will need to carefully navigate their financial obligations. It is essential to be aware of the consequences and seek proper financial guidance to ensure you can effectively manage your debt in this challenging situation.