Help! The student loan index is set to rise by 550%
Well, inflation has officially reached our HECS-HELP debt and on June 1 it is expected to increase to 3.9% from 0.6%.
A Mozo analysis found that the average HECS debt is about $23,280 and will see an increase of $768 in the amount they owe due to the recent Consumer Price Index (CPI) increase. This year the CPI went from 2.9% to 5.1%, consequently affecting all aspects of the cost of living across the country.
Wait, what is CPI again?
For those new here, the CPI measures the change in the value of consumer goods and services and is used to judge inflation in the economy as a whole.
Last time we had the index this high was in 2009 when it was 3.09% while the CPI was at 2.4%.
“These loans are not charged interest like a typical loan, but are charged an index each year, on the owing balance,” says Claire Frawley, Mozo Spokesperson.
So now about 3 million Australians are going to see that their HECS-HELP will take a bit longer to pay off due to the index rise.
“While most workers are prepared to start paying off their debt once they start earning above the salary threshold of $46,620, some people might not realise their debt is growing in size due to the yearly index applied,” says Frawley.
What does the HECS-HELP rise mean for me?
Well, for starters there is no need to panic. The amount you pay annually is based entirely on your salary, so the more money you make the more you’ll pay towards your student debt–which means you’ll pay it off faster.
Below is a handy graph on how payment works.
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The index rise shouldn't affect your repayments (unless you get a pay rise), but the time you spend paying them off will increase. So instead of the average 9.4 years, it takes someone to repay a HECS-HELP debt, it might be closer to 10 years.
“Much like interest on a loan, the student loan index is unavoidable when repaying student debt. If you are in the position to pay off some of your loan, it would be wise to make those voluntary repayments before 1 June, so that your total loan debt amount decreases by the time the new index is applied,” says Frawley.
Related: Does HELP debt affect your home loan borrowing power?
If you’re needing help getting your budget in order, be sure to check out our budget calculator. Alternatively, if you’re concerned about the cost of living make sure to check our Family Finance page.
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