More diligent than a lot of former students, Jasmine Duque-Anne made a cursory check of her Higher Education Loan Program (Help) debt every now and then. Over three years she had slowly been whittling down the original debt of just over $139,000 that she accumulated studying an undergraduate degree in exercise science in Melbourne and a postgraduate degree in physiotherapy at Queensland’s Bond University.
The amount was still “crazy high” but she had no regrets – she loved her job working as a physio on the Gold Coast. It wasn’t until she heard a news story on the radio about the impact of rising inflation on Help debt that she checked again. She was horrified. “It’s now $143,430.”
“To look at it now and see it’s even higher than the initial cost of my two degrees, it’s like I’ve done nothing. As it was, I was going to be paying off this loan for a long time; now I don’t know if I ever will,” Duque-Anne, 29, says.
She isn’t alone in feeling like she is going backwards. Already struggling amid the rising cost of living, many graduates and current students are only now realising the impact that inflation is having on their Help debt, previously called the Higher Education Contribution Scheme (Hecs).
“It’s really hard to get ahead as it is,” says Duque-Anne.
Help loans have typically been described as “good debt”, given they are interest-free. Mandatory repayments do not kick in until a person’s earnings reach a certain threshold, currently $48,361 a year. Often prospective students, particularly school leavers, don’t even check the cost of the degree they’re considering because paying for it seems far off in the future.
Duque-Anne was different. Having lived out of home since year 12, supporting herself while finishing high school, she was more financially literate than most. She was aware that she was taking on a large debt to pursue her studies, particularly her postgraduate degree, but people advised her that Help is the “best loan that you’ll ever have. Just pay it off as it comes out of your income and worry about saving for a house.”
But while all Help loans are interest-free, they are tied to inflation – which rose to a 32-year high last month – through a process known as indexation. In June 2021, the indexation rate dropped to 0.6% but this year it rose to 3.9%. As a result, inflation has piled more than $1.9bn of extra debt on to students in 2022 and is expected to add another $1.6bn in 2023. Suddenly Help debt isn’t looking so good.
“Inflation can really be a problem for the scheme, especially if it lasts for more than just a year or two,” says Dr Gwilym Croucher from Melbourne University’s Centre for the Study of Higher Education. “This really matters when you’ve got high debts.” When the scheme started in 1989, it was still a substantial amount of money to take on, “but it was nowhere near as much as a lot of students are paying now”, he says.
And while rising indexation might not affect current students, “it can certainly make them feel attacked from all sides”, says Dr Tracey West, a finance lecturer at Griffith University. It’s all about context. Students are already “under enormous financial pressures”, she says. And if keeping their head above water during a cost-of-living crisis is getting harder, so too is contemplating any future plans.
Rising Help indexation will “mean that over the long run, it is likely to take longer to pay down the debt”, says West. “This can affect their disposable income and ability to borrow as they move through the next phase of their lives.”
West is feeling that pinch personally – she has accrued about $34,000 of Hecs-Help debt over 20 years. Due to lower-paid work, time out of the workforce and living overseas, she hasn’t been required to pay it down, nor has she had the resources to make voluntary payments. “It will be a relief to me when I do, but in the meantime I’m making compulsory repayments while paying down a mortgage and raising a young child. It takes a mental toll.”
Errol Phuah, the national president of the Council of Australian Postgraduate Associations, sees the effect the debt is having on the students he represents.
“It manifests itself in poor mental health outcomes and just being very apathetic about everything,” says Phuah. “Students might be coping but they’re not really saving. There’s no guarantee that we’ll get secure employment and it’s really hard to get a loan when you’re on a short contract, let alone having accrued a large Help debt.”
A well-designed system – in need of reform?
The Help scheme in general, however, is considered by experts to be well designed. “The system works pretty well overall,” says Croucher. “If you look at the mess the US is in, we’re pretty lucky here to have our scheme. It’s fair in really important ways and there’s no doubt that it provides a personal benefit to a lot of people.”
Given the relatively robust design of the scheme, we are a long way from a US-style conversation about forgiving student debt. Rising indexation is unlikely to deter most people from studying or sway their choice about what they study. “It’s also probably – on average – only going to increase the amount of time that it takes to pay the debt back,” says Croucher.
But rising indexation also hits low-income earners and those most vulnerable to rising costs.
The current debate about Help is centred on whether indexation should be frozen as inflation soars (as the Greens recently put forward) or whether the repayment threshold should be lifted. The earning threshold before Help repayments kick in was climbing steadily for decades before suddenly falling in 2019-20 when the Coalition government dropped it from almost $52,000 to $45,880.
The repayment threshold is crucial to this conversation, says Croucher. “You can get some quite perverse outcomes where people are better off not earning the extra dollar.”
Incremental changes to the Help scheme such as changing the initial repayment threshold dovetail with other changes to the costs of courses, most crucially the former government’s “job-ready graduates” package implemented in late 2020.
Reforming the program is on the agenda for the new government’s upcoming universities accord, announced two weeks ago, but Phuah would like to see a debate around lifting the threshold for Help debt too. “I just see this as common sense, but also more importantly, it helps people; it cares about regular human beings who are struggling.”
The education department advises people who are struggling with repayments to speak to the tax office about their options. “Maybe that is the right solution,” says Croucher, “but it may need to be better publicised, better explained to people – and normalised.” Students also need to be better educated on financial literacy and on exactly what debt they are entering in to.
In the long term, there may be a need to re-examine whether the Help scheme still does what it was originally designed to do: help everyone access higher education.
Croucher believes there are several questions we need to be considering. “If your question is: ‘How do we ensure that we don’t create some perverse situations for vulnerable people?’, then it’s a different test for whether or not the system’s working. Part of this is whether people view the purpose of the loan scheme as a way to lend money that’s fair, or whether you view it actually as part of the subsidy system. If you view it as part of the subsidy system, it’s really important to ensure that it can’t leave people behind. It’s actually not working if there are people that aren’t able to pay it back.
“Maybe we need to ask a slightly different question: how do we best support people? And if that costs [the country] some more in some ways because it’s more generous or seems to be more generous, maybe that’s not a bad thing. It’s not a bug, it’s a feature and that’s to ensure that it doesn’t leave people behind.”
