Urgent warning to millions of Australians with student debt – with payments rising again
- Almost three million former students are having to pay increasing repayments
- Annual indexation rates rose from 0.6 percent to 3.9 percent this year
- Graduates must repay an additional $923 in addition to the average repayment of $23,685
- The $2.7 billion interest bill comes as students struggle to afford everyday expenses
Millions of Australians still paying off their student loans will be hit by a further increase in repayments amid the spiral cost of living Crisis.
Millions of alumni are being stung with a $2.7 billion interest bill after annual indexation rates rose to 3.9 percent from 0.6 percent.
Rising interest rates mean graduates with HECS or HELP debt are paying an additional $923 on top of the average loan repayment of $23,685.
Australians who are still paying off their student loans will be hit by a further increase in repayments (pictured students at the Australian National University in Canberra).
Millions of alumni are being stung with a $2.7 billion interest bill after annual indexation rates rose to 3.9 percent from 0.6 percent (Image, Sydney students)
Indexation is a formula applied to student loans that have not been repaid more than 11 months after the student graduates.
It preserves the real value of a loan by adjusting it for changes in the cost of living, as measured by the consumer price index.
The rate is closely linked to inflation, which rose to 5.1 percent in the March quarter.
The rising lending rates come as students feel the rising cost of living affecting the cost of gas, groceries and electricity.
Graduates hoping to secure a home loan will also be affected, as banks consider outstanding HECS or HELP debt when deciding how much to lend.
Data from Australia’s Internal Revenue Service has revealed that student debt has more than doubled in the past seven years, with nearly three million students owing the government a total of $69 billion.
Graduates hoping to secure a home loan will also be affected, as banks consider outstanding HECS or HELP debt when deciding loan sizes (pictured university students in Sydney).
Students graduating in the next three years could be hit even harder by rising indexation rates after the former Liberal government scrapped taxpayer subsidies for arts, law or business courses from 2021.
Graduates must begin making payments on their HELP loans when they earn more than $48,361 — with a minimum wage of just $42,000.
WHAT IS THE INDEXATION RATE?
The indexation rate is a formula applied to student loans that have not been repaid more than 11 months after graduation.
It keeps the value of the loan in line with increases in inflation and the cost of living.
The rate rose 3.9 percent since June 1 (up from 0.6 percent a year earlier).
Workers put 1 percent of their earnings on the payback, with the rate rising to 6 percent if they earn an average wage of $91,000.
Those making $142,000 or more lose 10 percent of their wages to HECS. repayments.
said National Union of Students President Georgie Beatty The Australian Students have been paralyzed by the rising cost of education.
She said full-time college students working towards a home or car loan may feel it is an “unattainable dream” and they often have to work overtime for little pay.
“Students are struggling with compounding debt on fees that are at unprecedented levels,” Ms Beatty said.
In May, students with HECS or HELP were warned they would soon be hit with the largest increase in repayments in 10 years.
As a result, former students may choose to make voluntary repayments on their debt to reduce the total and lower the interest rate.
However, experts said it would be foolish to prepay HECS debt as it is the cheapest loan a person will ever get.
Experts have said it would be foolish to prepay HECS debt because it is the cheapest loan a person will ever get amid rising indexation rates (pictured the University of Sydney).
Pivot Wealth founder Ben Nash told Nine.com.au the indexation rate was worrying as it outpaced current wage growth.
“If you compare it to wage growth, which is 2.4 percent annualized, you can see that it poses a challenge that is higher than wage growth,” he said.
“So that means people have to pay more of their salary to get the same impact.”
Mr Nash said the numbers should not discourage people from seeking higher education as it is likely the indexation rate will average around two per cent over 10 years.
“It’s only slightly positive because costs are still increasing, but HECS increases are not as high as increases in many other goods and services,” he said.