Yahoo Finance Young Aussie reveals ‘frustrating’ reality of HECS debt: ‘Sold a lie’
Chloe Rae owes $23,500 in HECS debt and says her repayments aren’t even enough to cover indexation.
A young Aussie is struggling to keep up with her growing HECS debt and said her repayments aren't even scratching the surface. More than three million Aussies are seeing their student debt continue to rise due to indexation, despite the loans technically being “interest-free”.
Chloe Rae said the indexation she was charged this year was more than triple what she repaid through her compulsory repayments. The 23-year-old, who works in publishing, told Yahoo Finance her HECS debt has already ballooned from about $18,000 to $23,500 in the last two years despite her compulsory repayments.
“The publishing industry is quite low pay and because of that my payments only end up being just over $500 a year,” Rae said.
“My indexation was $1,800 [this year] so it’s more than triple. And your payments through your pay slips don’t get counted until after indexation.”
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The Sydney resident said her growing HECS debt is particularly “frustrating” because she did not finish her university degree. She shared she was offered her current job while studying creative industries so she decided to defer her studies. Rae had also previously studied social work for one year.
She believes many young Aussies don't realise how much HECS debt can spiral or how indexation works when they take out the loan.
“I think we’re sold a lie about how harmless HECS is … They always say it’s the best debt you’ll ever have but at the end of the day, it’s still a debt, you still owe money and it still grows,” she told Yahoo Finance.
“It’s the best debt in the sense you’re not going to have someone knocking on your door if you lose your job for you to pay it. But it is still a debt and you still have to pay it.”
In hindsight, she said she wished she didn't go to university and finds it hard to "justify" when she sees her HECS debt grow each year.
Do you have a HECS story to share? Contact tamika.seeto@yahooinc.com
HECS debt continues to rise
Student loans jumped 4.7 per cent as part of this year’s indexation, the second-highest increase in a decade after last year’s rise of 7.1 per cent. For someone with an average student debt of $26,494, this translated to an increase of $1,245 this year alone.
The government has announced plans to change the way HECS is indexed so it's based on the lower of wages or prices, but this hasn’t passed through parliament yet. The changes would bring indexation down to 4 per cent for the 2023-24 year and 3.2 per cent for the 2022-23 year.
Teal MP Dr Monique Ryan, who led the charge in a campaign to change the way HECS operates, said there is still more that needs to be done.
That includes pushing for the government to change the date for indexation from June 1 to after the start of the financial year. At the moment, worker's compulsory repayments aren't deducted from their overall debt until they've done their tax return after July 1.
"This is just the beginning of a significant change to our HECS system," Ryan told Yahoo Finance.
"I think that it is time for a significant review of something which is no longer fit for purpose and doesn't, at this point, reflect the aspirations of the system when it was launched in 1989."
Getting on top of indexation
Rae said she has now decided to make voluntary repayments to pay off her HECS debt and has a goal of repaying it over the next few years.
“If I was to keep going the way that I was and indexing stayed the same, I wouldn’t really ever be able to [pay it off] because it would keep going up,” she said.
“By my pay, I’m only contributing $500 so I would like to get it to a manageable level so that when it gets indexed it doesn’t become impossible to catch up on. [And] the bigger your debt grows, the bigger your indexation is.”
Rae said she has opened up a dedicated savings account for her HECS debt and will be putting her estimated $1,700 tax refund towards it.
“I’m going to keep the money in there for a year so I at least can earn interest on it and then right before indexing happens, I will make that voluntary payment,” Rae said.
Financial adviser Helen Baker said making voluntary payments to your HECS debt could be worth considering if you have money sitting in cash “doing nothing”. But she noted that once you pay it off, you can’t get that cash back.
Baker recommended people look at their plans for the next few years, including any plans to buy property or start a family, and factor in how paying down their HECS could impact things.
“What tax bracket are you in? What commitments are you looking forward to? What things might change in your lifestyle going forward in the next few years?” she told Yahoo Finance.
“Look at all that together to work out whether it makes sense and how much makes sense.”
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