Stress and mortgage difficulties as inflation sees student HECS and other HELP debts balloon

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Preparing for the arrival of a baby isn’t cheap and as an expecting single mum, Carrie Riseley is watching every penny.

So the 36-year-old was shocked when she noticed in June that her HECS-HELP student debt had jumped $1,400 overnight.

“Having this additional debt that I wasn’t expecting to be increasing so much … that is worrying for the future,” she said.

The Hobart resident’s HELP debt grew because of inflation, which last month surged to a 32-year high.

The inflationary growth of her debt meant almost all her repayments from last financial year were wiped out.

“It turned out that I had paid off $74 through working full-time all year,” she said.

Ms Riseley’s HELP debt is now sitting at about $35,800. She completed an arts degree in 2008, but most of her debt stems from two diplomas she started in 2015.

“I had five casual jobs and was still on the Newstart payment (now called JobSeeker) in winter because there was plenty of work in the summer but not much in winter,” she said.

“I was making about $30,000 a year, which wasn’t really good — so I enrolled in a couple of diplomas to try and get more strings to my bow.”

On top of her HELP debt, Ms Riseley has a mortgage to repay.

“I really like my job now and I think my income has just hit around $60,000, but with the inflation, that’s worth a lot less than it was in 2015,” she said.

“So I don’t really feel that I’m in a strong financial position.”

How exactly does inflation impact student debt?

There are four kinds of HELP loans: HECS-HELP, FEE-HELP, SA-HELP and OS-HELP.

Compulsory HELP repayments don’t kick in until you reach a certain level of annual income. At the moment, it’s $48,361.

Once you hit that threshold, the amount of debt you have to pay back increases alongside your income — so the more you earn over a certain year, the more you’ll repay that year.

While all HELP loans are interest-free, they’re tied to inflation through a process known as indexation.

In June 2021, the indexation rate dropped to 0.6 per cent — but this year it rose to 3.9 per cent. That meant the average debt of $23,685 rose by about $924.

According to last month’s federal budget papers, inflation has piled more than $1.9 billion of extra debt onto students in 2022. That’s expected to jump another $1.6 billion in 2023.

On top of that, the October budget forecast real wages — which haven’t been keeping up with inflation — won’t start to grow until 2024.

Inflation is likely to remain elevated for a while longer and the indexation rate next year is expected to grow again — so it’s likely debts will continue to compound.

Andrew Norton, professor of higher education policy at the Australian National University, said your total HELP debt has no influence on how much you repay in a given year.

In fact, because the income thresholds to begin repaying debt are also pegged to inflation, the amount you must earn before mandatory repayments kick in has also increased.

But Professor Norton said higher indexation means it’ll take you longer to pay off and you’ll pay more over the lifetime of the loan — which in turn can affect future living standards.

“Obviously people would like to be free of this debt. It affects all sorts of things, including how much you can borrow in a mortgage,” he said.

“So there is reason for concern, but not panic, because it’s not going to affect you this year.”

‘It made me upset’

Melbourne man Ben Haber wasn’t thinking too much about his student debt until it scuppered his ability to borrow for a mortgage.

“The common wisdom is that HECS is the best loan you’ll ever get — you just get it and then forget about it,” the 28-year-old said.

“I didn’t look at it until I applied for a home loan and needed to produce those numbers for the bank.”

The now-lawyer spent six years in tertiary education and left with a HECS-HELP debt of about $140,000. Three years later, he’s only been able to get that down to about $130,000.

Looking for a mortgage, Mr Haber went to a broker. He was told lenders were worried his HELP repayments would affect his ability to also make mortgage payments.

He’s now close to being approved via a different bank. But he said it’d been difficult “shopping around” for a mortgage and he could’ve borrowed $50,000 more if he didn’t have his debt.

“I had in my head a certain number that I’d be able to borrow,” Mr Haber said.

“My HECS … was supposed to be the best loan I could ever get and something that I wouldn’t really notice until it was totally paid off.

“It made me a bit upset to realise that was holding me back from achieving such a big life goal.”

‘A scary prospect’

It’s not just former students stressed about inflation and debt.

National Union of Students president Georgie Beattie said many current students were having to study part-time and work multiple low-paid casual jobs, all while worrying about paying back “a balloon of HELP debt that’s slowly growing”.

“It becomes a really scary prospect, because you know that debt is going to start affecting your future,” she said.

Many HELP debts in the coming years were already expected to be bigger after the Coalition hiked up the cost of various degrees in 2021.

The policy saw fees for popular courses — such as arts and law — increase, while those in sectors it deemed high-priority — such as nursing and teaching — were cut.

Professor Norton said the policy meant certain graduates would be saddled with HELP debts for longer.

“For those expensive courses, you’re looking at sort of $45-$50,000 just for a standard bachelor degree — and of course, all that will now be indexed,” he said.

“But humanities students, who don’t typically earn as much, could take a very long time, potentially decades, to repay their debt and being indexed every year along the way.

“However nursing and teaching graduates could repay their debts very, very quickly.”

If the government “wanted to hold HECS debt to its true intention”, Ms Beatie said, it would freeze indexation.

“HECS isn’t meant to be a debt that affects the rest of your life — it’s meant to be an opportunity.”

‘How long will this debt be hanging over me?’

In a statement, the Department of Education said HELP had allowed more Australians to get a university degree “in a sustainable way”.

“If a person is experiencing hardship they are encouraged to apply to the Australian Tax Office for a deferral of their compulsory repayment”, a spokesperson said.

The affordability of degrees is set to be reviewed as part of a new policy and funding agreement the government hopes to broker with the tertiary sector, the spokesperson added.

But that’s little comfort for Mr Haber, who said HELP debts were increasingly impacting people’s ability to “move forward in life”.

“[My debt] will have to be serviced for a long, long time,” he said.

Ms Riseley said it was frustrating to see how expensive higher education had become.

“A lot of the politicians that decided [the system] got free degrees back in the 1970s and 80s — that’s particularly unfair,” she said.

As someone about to embark on maternity leave, Ms Riseley said she was concerned about what she’ll be able to buy for her kids in the future.

“With the HELP debt, mortgages, inflation, interest rates going up, it’s a scary question that I try not to think about … how long will this debt be hanging over me?”

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By the Specialist Reporting Team’s Evan Young and national education and parenting reporter Gabriella Marchant (Original ABC Article)