There’s a lot of people talking about HELP (formerly HECS) loan indexation at the moment – but what does that mean exactly?
The HECS-HELP scheme assists eligible Commonwealth supported students to pay their student contribution amount of their fees with a loan. HECS‑HELP loans are available at all public universities and at a handful of private higher education providers.
HELP or HECS loans are often thought about and referred to as being less debt-like debt. This is because they don’t generate interest, but they are indexed on 1 June each year.
Indexation is applied to your debt to maintain its ‘real’ value by adjusting it in line with inflation.
This was a big topic of conversation last year when loans were indexed at 3.9%, but it has now been confirmed that this year will be nearly double that at 7.1%. These are extreme increases, unlike any in the past decade:
In short, if you have a HELP loan and log onto your MyGov account you might get a bit of a fright. The average HELP loan, $23,685, is set to increase by around $1,680 this year.
The compulsory repayment threshold for the 2022-23 financial year will be $48,361, with the repayment rate increasing with earnings. Anyone who makes between the threshold and $55,836 will pay back 1% of their income, $55,837 - $59,186 will pay back 2%, increasing to a maximum of 10% for anyone making $141,848 and over.
For a lot of young people, including students still completing study, balances will grow substantially before they can even afford to begin paying it off. On the average loan amount, anyone making below the 3% repayment threshold ($60,992) will have their loan balance increase faster than they can pay it off (without additional payments).
The whole idea behind our student loan system is to reduce barriers to higher education, passing the cost forward to when (hopefully thanks to that study) you can afford to pay it off. The system was set up to give Australian students an alternative to personal loans, not as a source of government revenue.
Young people and students were hit hard by the pandemic. Those in precarious, seasonal and casual employment were the first to lose their hours, jobs and income – and young people particularly were the last to get them back. So why are we piling on and saddling them with even more financial burdens?
What would help?
The federal government has the power to freeze (and end) student loan indexation. It’s really that simple. This is a huge increase to Australian students’ loans, saddling young people undertaking higher education with a disproportionate amount of debt to carry into their futures.
YACSA recently appeared before the Senate Education and Employment Legislation Committee’s inquiry into the Education and Other Legislation Amendment (Abolishing Indexation and Raising the Minimum Repayment Income for Education and Training Loans) Bill 2022.
