Financial advisers warn students about the impact of indexation on HECS-HELP debt
The Australian Tax Office (ATO) has released the country’s 100 largest HELP/HECS debts through a Freedom of Information request – and the highest debt is a whopping $737,000.
The second-biggest has ballooned to nearly half a million dollars, with the third coming in at $387,000.
The lowest in the top 100 was more than $219,000.
These 100 graduates have the dubious honour of owing a total of around $25 million between them, accounting for an unknown number of degrees.
The federal government is trying to claw back what it can, and in 2020, changed the loan limit so it could place a cap on the amount students could borrow to cover their tuition fees.
The person repaying the biggest debt on the top 100 list would be over 200 years old before even getting close to paying it off without voluntary extra repayments.
ATO top 10 HECS debts
The highest is nearly three-quarters of a million dollars.
The debts are forgiven, however, upon death. But the ATO says an estate could still be liable for a portion.
An ATO spokesperson confirmed that this year the HELP loan limit had been reduced to $113,028 for most students.
For those studying medicine, dentistry and veterinary science courses or eligible aviation courses with census dates in 2023, that limit is $162,336.
The ATO said most of the amounts in the top 100 piled up prior to the limit being introduced.
So where does that leave the 3 million others who still owe billions in HECS in a high-inflation environment?
On June 1, their debts will be slugged with a likely 7 per cent indexation, hiking it up even further.
Even though the debt is technically an “interest-free loan”, it is indexed to keep up with inflation.
Minimum repayments sending debts ‘backwards’
Brisbane financial advisor Pedro Marin Ramirez has seen a jump in inquiries from worried graduates in recent weeks.
“No-one really cared until this figure came out, the 7 per cent hike … no-one was ringing, it was a dormant dead issue,” he said.
“The last time I saw anything like this was when the government said, ‘If you are overseas you still owe us money and have to meet the HECS-HELP debt obligations’.”
He agreed it was slim pickings for those who wanted to pay down the debt due to spiralling cost-of-living expenses — but warned those who were only paying the compulsory minimum were “going backwards”.
Mr Marin crunched the numbers on a debt of $50,000 at 5 per cent indexation over 10 years, based on an entry-level income of $60,000 with a 4 per cent yearly pay rise.
It showed the graduate would actually owe nearly $10,000 more on the original debt, having also paid $27,324 in interest — so the debt accrued faster than they could pay it off.
For someone earning a much higher salary of $142,000 with a 4 per cent yearly pay rise, the calculations were a whole lot better.
HECS debt over 10 years
Total HECS debt remaining when the minimum payment has been made over 10 years with 5% as an average CPI and salary increased by 4% every year.
The interest paid was just over $10,000, and the debt could be paid down within seven years.
And what about the graduate with the highest HECS debt in the nation?
Even with an executive-level income of $250,000 a year with a 4 per cent yearly pay rise, a $737,000 debt would mean about $400,000 in interest over a decade and $74,000 more in debt than what the graduate started with.
Should you get a personal loan?
Mr Marin said this was the worst kind of money pit to slide into.
“It has monthly servicing fees, and secondly, it is a debt you enter into with no collateral to call on, so you have to pay more interest,” he said.
“Imagine 10 per cent, 12 per cent or 15 per cent — it is just not viable.”
He said he knew of some graduates whose parents lent them money to pay off the debt and they then slowly paid their parents back.
Hold off on that extra latte
Mr Marin best advice was to tighten the belt if possible and pay regular extra voluntary repayments — not so easy, of course, when some graduates are struggling to put food on the table or pay rent.
But a spare $25 or $30 a week would make a reasonable dent over a few years.
A Senate inquiry report into a bill that would freeze $74 billion in student debt is set to be tabled in federal parliament next week.
The Australian Greens’ push to abolish indexing on HELP debt, backed by the National Union of Students, argued the scheme was “unsustainable and broken”.
According to 2022 federal budget papers, inflation had loaded students up with more than $1.9 billion of extra debt.
That is expected to jump another $1.6 billion this year.
Article Credited to Lexy Hamilton-Smith, abc news
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