Higher education debts are now far more likely to affect personal or home loan applications as soaring student debt adds to the skyrocketing cost of living and housing pressures.
About 2.9 million Australians currently owe a share of more than $68.7bn under the federal government’s Higher Education Loan Program (Help) – previously the Higher Education Contribution Scheme (Hecs). More than 1.3 million people last year each had student debts worth more than $20,000.
Data from the Australian Taxation Office shows that over the past two decades, the proportion of debts worth over $10,000 has steadily increased. In 2005, the percentage of Help debtors who owed more than $10,000 was 47.51%. It’s now more than 72%.
The proportion of debts worth more than $50,000 has also increased from 2011. The growth followed the increase in 2007 of a cap on the amount of debt a student could accumulate. The fees set by universities also increased substantially in subsequent years.
The data suggests other policy changes have also affected debt levels – with the total Help debt of those aged under 29 jumping in 2017 after the government lifted the student contribution for fees. There was not a similar bump in debt for other age groups.
Larger debt and higher repayments are increasingly affecting people hoping to access a home loan, David Thurmond from Mortgage Choice tells Guardian Australia.
“It’s more of a liability than it used to be,” Thurmond says. “I’ve been a broker for about 15 years and when I first started, Hecs debts were quite uncommon. If there was a debt it was quite small, maybe $5,000 or $10,000. That’s grown over the years and now we’re seeing average debts of $20,000 to $40,000.”
With property prices so high, Thurmond says prospective homeowners are choosing – if they can – to pay out their Hecs debt before applying for a mortgage to access larger loans from the bank. But this isn’t an option for many – making the squeeze to own their own home even tighter.
“The Hecs repayment is like a credit card payment or a car loan – it’s a liability that the banks have to account for, so it will decrease your borrowing capacity,” Thurmond says.
In addition to the larger debts students are accruing, government repayment requirements have changed over time, kicking in at a lower salary threshold and increasing as salaries rise.
Thurmond says he started to observe Hecs balances “coming up quite fast” over the past five years. Previously “the repayments were never an issue – if we had them, they were a $20-$100 repayment per month. But now it’s like a $700 repayment per month,” he said.
With the value of the debts tied to inflation – increasing proportionate to the consumer price index, which meant debts went up by 3.9% this June – and repayments starting once a person’s earnings hit $48,361 a year, more Australians than ever are feeling the pinch.
Data published by the Australian government shows the minimum income where no Help repayment is necessary was climbing steadily for decades before suddenly decreasing in 2019-20. The minimum income dropped from almost $52,000 to $45,880 that year.
For Brisbane resident Tracy, who asked to be identified by her first name only, her debt proved an obstacle last year when she tried to get a $20,000 loan to replace her 27-year-old car.
“I had a lot of trouble with my borrowing capacity because of my Hecs debt,” the 53-year-old says.
Tracy earns the average salary for a woman in Australia of approximately $80,000. She had gone back to study as a mature-aged student in 2014 – hoping to make a career change. She has been paying off a mortgage on a unit for 20 years and has about 50% equity.
She saved money to contribute to the cost of the car and was not borrowing the whole amount. The bank nevertheless only allowed her to take out the loan if she cancelled her credit card.
“I know I’m in a really fortunate position compared to a lot of people,” Tracy says. “Having said that, I do pay pretty much half my take-home pay to service my mortgage and all the costs associated with the unit complex, in an attempt to pay it all off before I retire.” She has had to bring in a boarder to help manage the day-to-day costs of living.
Part of the problem with Hecs/Help debts, Thurmond says, is how long they stick around. “With a personal loan or car loan you’ll have that paid off in 5-10 years, but a Hecs debt will carry for much longer.”
The gender dynamics of the debt burden are complex. There are significantly more women than men with Help debts, however, men tend to accumulate higher debts. In 2020-21, the most recent year where data is available, more women than men in every age bracket have a debt, with twice as many female debtors as men among 40 to 49 and 50 to 59-year-olds.
Katherine, 42, who is a regional New South Wales resident who requested a pseudonym due to the sensitivities of her work, says, “I feel like I’ll never pay off my Hecs.”
Katherine first began studying in 1998 and completed two years of a computer-science degree before switching to a four-year psychology degree. She has nearly completed a masters in psychology – which she requires to become a registered psychologist – rounding out eight years of study.
Katherine worked for a couple of years between studying and then took five years away from the workforce to have children.
Katherine estimates her remaining debt to be more than $40,000 but it is something she “avoids looking at” – partly because, having had the debt for 24 years, she fears it will be with her forever.
“As a woman who’s had heaps of time off work to have children, and then going back to work part-time, there’s a part of me that thinks, well, I’m never going to pay this off,” Katherine says.
“To really earn the money to pay it back I’m going to have to put myself into private practice, which is not what I want to do – I’ve always wanted to work in public health where there’s more need. It’s not ideal to have a huge debt. But I do still feel that I’ve been lucky to be able to get an education.”
• This article was amended on 19 September 2022. A previous version said ATO data showed the proportion of debts worth over $20,000 had steadily increased, rather than the correct figure of $10,000.
