That works out at $1584 dollars for the average student debt of $22,000, according to teal MP Monique Ryan who says the government should not give students “a HECS debt crisis” when they are already grappling with a cost-of-living crisis.
Certainly, any ex-student unfamiliar with inflation indexing will get a sharp reminder of what it means when the increase commences June 1.
But a lesser known measure relating to HECS – set in stone by the nation’s prudential regulator only a few months ago – is also set to make a major difference.
It did not seem like a big deal at the time but a letter last year to the banks from the Australian Prudential Regulation Authority “clarified” macroprudential credit measures. In short, from September 2022 every bank had to include the HECS (or HELP) debt of more than three million Australians in calculations for debt-to-income ratios.
A new analysis by the Compare Club group based on tax office data reveals just how much of an obstacle HECS debts have now become to home-loan applicants.
According to the report, a HECS student on an average salary will not just get a bigger HECS bill but their “borrowing power” has been reduced by at least $15,000 – and up to as much as $104,000 depending on their salary.
The sting in the tail for the HECS cohort is that many have laboured under the illusion that their HECS debt would never matter much since there was no interest charged.
There is still no interest charged, but inflation is kicking hard. Tuesday’s CPI number showed it remains stuck near 7 per cent.
The 7.1 per cent inflation indexing for HECS and HELP debts that kicks in for the next 12 months from June 1 follows a 3.9 per cent lift last year.
According to Compare Club chief executive Lance Goodman, whose personal finance marketplace offers comparison services for consumer financial products: “When our own brokers looked at our average graduates, the number of options dropped from 15 lenders to one lender once HECS debt was added into the equation.”
According to Goodman, “HECS is now not only restricting your borrowing power, it restricts your options and increases your repayments”.
Anyone who has an annual salary of more than $48,361 automatically has their student debts trimmed from their pay packets under the existing rules set around compulsory gross income payments.
There has also been wide complaint that the tax office does not deduct repayments from total HECS and HELP debts in real time.
Meanwhile, APRA has again ruled out any change to the 3 per cent buffer which directly affects first home-loan borrowers. Under the buffer rules, which remain under review, a bank must add 3 per cent to the rate a borrower takes out to assess “serviceability” – that is, if you want to borrow at 6 per cent, you must prove you can make the payments on a 9 per cent loan.
The buffer rules, which are meant to be temporary, affect new home-loan borrowers most severely.
Existing home-loan holders might not pass the test today but they are indifferent to the current settings. In contrast, new home-loan applicants now have buffer servicing added and HECS debts subtracted from their borrowing capacity – a double whammy.
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Rapidly inflating student debt has become the latest factor locking new homebuyers out of the property market. From June 1, HECS debts rise by 7.1 per cent.