HECS-HELP debt indexation: June 1 student loan hike to hit homebuyers hardest

Loan indexation hits HECS-HELP debts on June 1, and this year it’s higher than ever. Use our interactive calculator to find out how much more you’ll owe.

Three million Australians are on Thursday being whacked with a 7.1 per cent hike to the debt they owe to the federal government, with student loan indexation expected to add more than $1600 to the average HECS debt.

The sharp indexation rate is expected to affect would-be homebuyers most, wiping $15,000 off the average graduate’s borrowing capacity after HECS debts were made a compulsory factor in home loan applications mid last year.

The national average HECS-HELP debt is $23,685, but Australian Taxation Office records show there are least ten Australians with debts in excess of $300,000. Loan limits introduced in 2020 set a maximum borrowing ceiling of $162,336.

Modelling undertaken by personal finance comparison company Compare Club shows a couple with a combined salary of $136,000 and $22,000 of student loan debt each would lose $15,000 of borrowing power. A single earning a $120,000 salary with a six-digit HECS debt could lose out on a whopping $104,032.

“In addition to more debt and lower borrowing power, having a HECS-HELP debt severely limits a borrower’s lending options,” said CEO Lance Goodman.

“When our brokers looked at our average graduate, the number of options dropped from 15 lenders to 1 lender once HECS debt was added into the equation,” he said.

Compare Club home loan broker Sophie Matthews said plenty of her clients have gotten a nasty surprise when they were told their student loans would be taken into account by lenders.

Some university graduates will be paying their HECS debt even longer after a 7.1 per cent indexation is applied on June 1. Picture: Jack Atley/Bloomberg News

“I don’t think people anticipated for [indexation] to go up so much, and it’s impacting them significantly,” she said.

“I actually had to decline a client this week because of their HECS debt – they couldn’t borrow what they wanted to borrow.”

Brett Sutton, a mortgage broker with Sydney-based firm Two Red Shoes, said he’s also been having tricky conversations with clients about their HECS debts in recent weeks, frustrated that the opportunities afforded by their earning capacity are being hampered by the student loans they rarely think of.

Two Red Shoes mortgage broker Brett Sutton. Picture: Supplied

“It’s not uncommon, not uncommon for us to see clients with a HECS debt between $50,000 and $100,000,” he said.

“[Lenders] also factor in the amount of debt that you have. So while those repayments might be minimal … it can limit the maximum amount you can borrow based on the amount that you owe.

“If you do have some excess cash … it’s well worth starting to pay [your HECS] down because we could be in this high inflationary period for a couple of years … so we may not see that low indexation again for quite some time.

“The pressure really is on the government to try and reduce inflation to bring this back in line.”