Time is running out for 3 million Australian university graduates to slash their student debts before the federal government's multi-billion-dollar indexing bonanza, the National Union of Students (NUS) says.
President Bailey Riley had been campaigning for change to freeze or delay the hike, but it was not addressed in the federal budget this month.
On June 1, in nine days' time, $74 billion worth of HECS/HELP debt will go up by 7 per cent — an increase of more than $5 billion.
However, the budget papers put the hike at just $3.6 billion.
The union says that figure is confusing, but it could be because the government has payments to make due to its student loan borrowings at the Reserve Bank cash rate.
It could also be influenced by HECS/HELP indexation being based on a two-year average of the consumer price index.
While HECS/HELP is essentially an "interest-free" loan, the union said the high inflation environment has caused indexation to spike to one of the highest levels in decades and it has shocked students around the country — many who are already struggling with the cost of living crisis.
"It is a 30-year-old system and it has not been looked at or updated in 30 years, so we feel the government has to do something about it now," Ms Riley said.
As the union turns to the University Accord to continue its push for HECS/HELP relief, distressed students and graduates are counting their spare cash to see how much they can slash off their debt before it goes up again.
Students bracing for June 1
Angus Newman, 23, has a Bachelor of Biological Science and has completed two years of his post-graduate studies.
Currently, his HECS/HELP debt is sitting just below $50,000.
Come June, an additional $3,500 will be added to his debt.
"It is really worrying considering I haven't finished studying, so it will keep on growing," Mr Newman said.
"Although I'm not paying it at the moment, it means I won't be able to get ahead of my debt for a while after I start earning."
The $5.1 billion the government is set to accumulate is concerning to Mr Newman.
"If this has happened once, I am sure it'll happen again," he said.
Kate Andersson completed an arts degree, a law degree, and a diploma in legal practice at the University of Queensland.
Her HECS/HELP is currently sitting at $67,000, and with indexation, that will jump by $4,700 to over $70,000.
Ms Andersson has thought about paying off more of her debt before June 1 to avoid such a large surplus.
"Unfortunately my rent is about to increase, so I just am not in the position to pay off much more," she said.
"It is starting to feel like HECS isn't the 'good debt' that we were sold."
Interest or no interest?
Credit adviser Brett Sutton said indexing allowed governments to recoup study loans at the same value as when it was given, in line with current inflation.
"So while there is no interest, it does accrue and does go up over time," he said.
Mr Sutton warned that a debt could impact a person's borrowing capacity, especially when it comes to mortgages.
That said, indexation is not as expensive as credit card loans or personal interest rates.
"But, if you do have any spare income or savings that you can put towards this, it is going to make a difference to the balance and the time it takes to pay off into the future," he said.
Mr Sutton acknowledged that the federal government had a "fine balancing act" in repatriating the value of the loans and keeping students moving through university and out into the workforce.
"I don't think the system is terrible, but I think the responsibility is on the government to try and do something with inflation," he said.
Mr Sutton said a cap on the indexation of student loans, or reducing the minimum income for repayments to enable graduates to start paying it off earlier, are options the government could look at.
Growing confusion
For first-year students, it's a little-known fact debts are not indexed until they are 11 months old – so you can get ahead of the game by paying it off as you go.
But, of course, you need spare cash on hand to do that.
Financial adviser Marisa Broome said her son was also confused about the lag between finishing a course and when it was recognised by the ATO, so you could start to pay down the debt.
"He finished his graduate certificate in legal practice in 2021 and received a Commonwealth Assistance notice in September 2021 stating his debt has been reported to the ATO," she said.
"However, to date, it is still not linked to him and doesn't appear when he looks up his debt.
"His employer will be paying the debt in full, but can't until it appears, but as it isn't there he could be subject to the indexation for the last two years even though he hasn't been able to pay the debt."
Sound confusing? That's because it is.
The NUS wants a total overhaul of the system and is urging the government to simplify it through the Australian Universities Accord which has been tasked with building a "visionary plan" for the sector.
Officially the objective of the Accord is to "devise recommendations and performance targets that will improve the quality, accessibility, affordability and sustainability of higher education, in order to achieve long-term security and prosperity for the sector and the nation."
This is general information only. You should consider obtaining independent professional advice in relation to your particular circumstances.
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