Zoe thought 2023 would be the first year she’d make a dent in her $123,000 student debt.
The arts law graduate from Victoria has been working full-time in the public service sector for five years. In that time her higher education loan program – previously the higher education contribution scheme hasn’t shifted, even though she has been making payments on it for five years.
In Australia, student loans are tied to inflation and increase annually in line with the consumer price index, which means rises cause Help loans to spiral, sometimes in excess of repayments.
On Wednesday the last consumer price index (CPI) revealed debts will be indexed at 7.1% this year, up from 3.9% last year and 0.6% in 2020. It will take effect on 1 June.
A promotion to a $100,000 salary last year had Zoe hopeful. But with indexation, her debt will rise by about $9,000 when it comes into effect on 1 June.
The $10,000 she’s estimated to pay back this year – the second biggest expenditure in her life after rent – still won’t make a dent. In the past five years, she’s paid off more than $15,000 of her debt and it’s only reduced by about $4,000.
“It’s a bitter pill to swallow,” she says. “There doesn’t seem to be an end. My rent went up $80 a week in March and everything is more expensive … wages don’t keep up with indexation, why do our debts?”
At the new expected rate of indexation, people with an average student debt of $24,770 will face an increase of $1,759. The 585,000 people with debts in excess of $40,000 or more in the latest financial period will be hit with a $2,840 increase.
Zoe says even privileged graduates paid decent incomes like herself are being caught in a debt cycle. She’s been told by mortgage brokers her Hecs will impact her ability to finance a housing loan.
“It is incredibly disheartening to realise that the debt will probably not be paid for another 20 years if I choose to stay in the public service,” she says.
“It’s made it feel impossible to get ahead financially, despite being in an incredibly privileged position to have a high salary and a secure job.”
This month a committee recommended against passing a bill put forward by the Greens senator Mehreen Faruqi to freeze indexation and increase the minimum repayment threshold to the median wage.
Under the Coalition in 2019, the threshold was reduced from $52,000 to $48,361 – about $6,000 above the minimum wage.
Faruqi says the federal government is “completely out of touch” with the reality of millions holding student debts. “Labor has elected to sit back and watch as millions of Australians are hit with a student debt avalanche,” she says.
“An education system that traps graduates in a debt spiral and forces them to repay student loans when they are barely earning above the minimum wage is unsustainable and broken.”
On Wednesday the independent MP Zoe Daniel will call for an urgent review into Help after the release of the latest indexation rate.
She will say the federal government has “made it clear” it won’t freeze indexation but there are immediate options that can be implemented to ease the pain on graduates.
“If indexation were applied after compulsory repayments, Australian students would be saving hundreds of dollars this year alone,” she will say. “These are all stopgap measures. After being set up in the 1980s, Help is no longer fit for purpose and is overdue for independent review.”
More than 3 million Australians owe in excess of $74bn in student debt. The time for graduates to repay debt in full has consistently increased year on year, now sitting at almost a decade.
Last year Australians were hit with a record high indexation rate of 3.9%, which added $923 to the average student debt. At the same time real wages are falling.
The education minister, Jason Clare, said the universities accord process would consider issues of affordability and Help was designed to remove upfront cost barriers to tertiary education. “It encourages more people to engage in university education and obtain qualifications that help them to find better employment and increased wages,” he said.
Jacob Atkins’ approach is “[trying] to forget my Hecs exists”.
Atkins, who lives and works in London, has a student debt of about $36,000 and is only managing to pay off about $500 a year.
With indexation, he estimates his debt will go up by more than double what he’s managed to pay off since graduating with a bachelor of arts in 2015.
“It’s grim,” the 31-year-old says. “I’m only earning about $59,000 before tax, so given the cost of living here I really don’t see how I’m ever going to manage to make a dent in debt.
“It’s perverse that the indexation is based on the CPI but doesn’t take into account the impact of the CPI on borrowers. It’s adding to the already increasing cost-of-living burden.”
If Atkins were to study today, his debt would be about three times higher.
In 2020 the former federal government rolled out the job-ready graduates program, which cut university funding by about 15% and more than doubled student fees for a range of courses including arts and commerce, while reducing fees for other degrees.
The system aimed to incentivise students to study certain science, technology, engineering and mathematics degrees.
Lia Perkins has seen the impact of the scheme first-hand. The University of Sydney student began her arts degree the semester before the scheme came into effect. If she’d deferred, the cost of her degree would have jumped from about $20,000 to $45,000.
Perkins is frustrated her generation is being saddled with greater debts at a time saving is becoming harder.
“I’m personally dreading it … it’s very scary, our first big debt and the prospect of it increasing without me being able to pay for it is alarming,” she says.
“Should I spend my savings to pay it off? I don’t know how we’re supposed to keep up with the cost of everything increasing.”
• This article was amended on 26 April 2023 to correct the date that the yearly indexation of Help takes effect, from 1 July to 1 June.
