HECS-HELP loans are widely regarded as the least important debt to pay off, as the loans don’t accrue interest like a credit card or mortgage.
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But what many former students may not realise is the loan amount is adjusted each year by the indexation rate to account for inflation, which last month jumped to its worst result in more than two decades.
This year’s indexation is set to be the worst in 10 years, as student debts are hit with a 3.9 per cent surge from June 1 – up from last year’s rate of just 0.6 per cent.
So, what does this mean for your outstanding loan and should you rush to repay it?
Splashing the cash
The indexation rate is applied to the part of an accumulated study and training loan that has remained unpaid for more than 11 months.
Finance expert Richard Whitten said the yearly adjustment is influenced by the cost of living, which has skyrocketed this year.
“The last few years, it’s been quite a low jump,” Whitten said, adding that the pandemic, rising energy costs, war in Ukraine and rising interest rates were among the mix of factors impacting the surge.
While some students and graduates are alarmed at the hike, Whitten said it served as a reminder not to forget about the debt.
“Be aware that it’s a bit more of a jump than previous years,” he told 7NEWS.com.au.
“A lot of people don’t think about the cost while they’re at university and when they graduate.
“They don’t think about it until they have to start paying it back, but it’s good to be aware the debt is there and it does grow. With inflation being high, it will grow faster than you think.”
University student Eloise Hartill, who is currently studying her Juris Doctor in Melbourne, is among those concerned at the hike.
“This if my fourth of six years at uni. My debt is currently at around $30,000 just from my undergrad and at the end of this year, it will be around $70,000,” she told 7NEWS.com.au.
“The increase is very stressful to me as I already knew that I would have to pay around $40,000 upfront already to finish my degree, which is already stressful enough.
“I think it’s hit a lot harder as, due to COVID restrictions, students are getting access to less resources from uni and spending a lot of time studying from home or online.”
While she knows she won’t need to pay off her debt instantly, Hartill is worried about how it will impact her down the line.
“I study full time while living out-of-home so I am able to attend the best law school in Australia – I already struggle to support myself let alone start to pay off my uni debt,” she said.
“It is something that already crossed my mind and the major increase just makes it worse. I am worried about my ability to buy a house and have any savings when I graduate at 24.”
Getting bang for your buck
Almost 3 million people with HECS-HELP debts will be affected by the increase, but Whitten said it was not cause to panic and rush into repayments.
Recent data showed the average HELP debt balance was $23,686 in the 2021 financial year. This suggests the average person’s debt would jump by around $920.
“If you’ve got more than that you’ll have a much bigger debt, so 3.9 per cent is big jump,” said Whitten, who works as home loans editor at comparison site Finder.
Despite this, he said student loans are still the “least urgent debt anyone probably has”.
“It depends on the person, but most financial experts would say don’t worry about it,” Whitten said.
“It also depends on other debts – personal loans, home loans. Even if you don’t have actual debts, but buy now pay later, focus on that first.”
For those with spare cash on hand, Whitten suggests thinking about increasing how much is paid out of your salary before the cut off.
“If you’re concerned about it or you have a large debt, that’s something to consider,” he said.
“If you pay off a bit before June 1 you will minimise that debt. Some people with benefit from that, but for most it’s more about being aware of the increase than an urgent need to repay.
“If you do have a bit of money and you might think about investing for a better return.”
It all comes down to your money personality and how comfortable you feel with debt, he said.