Banks open to overlooking student debt in home loans – but there’s a catch

The peak body for Australian banks says changing how student debts are considered in home-loan applications could play a part in helping young people break into the housing market.

But in their first intervention in the debate, the banks said it should be up to financial regulators to determine whether HECS-HELP debt received special treatment in mortgage assessments, rather than being counted in the same way as credit card debt.

A major review of universities earlier this year found crippling debts were forcing some young Australians to choose between buying a home and an education, sparking calls to overhaul the way banks assess student loans.

Australian Banking Association chief executive Anna Bligh said responsible lending rules required banks to assess HECS-HELP debts in the same way as credit card debt, car loans and spousal payments when determining someone’s borrowing capacity.

“Changes to how HELP debts are considered in home-loan assessments will not be the panacea to fixing housing affordability, but it could be a small part of addressing this important issue,” she said.

“Banks would support the government referring this matter to the Council of Financial Regulators. However, this needs to form part of broader measures by the government to address housing affordability.”

The Council of Financial Regulators is the co-ordinating body for the Australian Securities and Investments Commission and the Australian Prudential Regulation Authority – which have both issued regulatory guidance around HECS-HELP – as well as the Reserve Bank and Treasury.

The Australian Banking Association – representing 20 banks, including the big four – gave the same advice to Assistant Treasurer Stephen Jones when he wrote to them to clarify how lending rules were implemented in regard to student debt.

“We are continuing to work with Treasury and the [banking association] to understand current practice before considering if action is necessary,” Jones said.

Bligh’s position shifts the onus for action back to the federal government, which would need to refer the issue to the regulators’ council.

Australian Banking Association chief executive Anna Bligh says changes to how HELP debts are considered in home-loan assessments will not be the panacea for housing affordability but could play a part.Credit: Oscar Colman

The Universities Accord report called for the government to ensure banks recognised that HECS-HELP – which starts recovering student loans through the tax system once graduates earn $51,550 a year – was not like other types of loans because it was not possible to default.

“Unless someone earns sufficient income, there is no obligation to repay and as such they should be treated differently,” the report said. Among dozens of recommendations, it said HECS-HELP should not be treated in a way that unduly limited a person’s borrowing capacity.

The recommendation was backed by University of NSW vice chancellor Attila Brungs, University of Sydney’s vice chancellor and president of the Group of Eight, Mark Scott, as well as federal crossbench politicians David Pocock and Allegra Spender.

Education Minister Jason Clare, who will reveal the first stage of his response to the University Accord’s recommendations in next week’s budget, on Monday acknowledged more needed to be done around student debt and home loans.

“In response to that, the assistant treasurer has written to the banks, written to the ABA asking for advice on how they treat HECS debt. So there’s work under way in response to that recommendation,” he said in an ABC radio interview.

Asked if that meant student debt would not be included in future home-loan calculations, Clare said: “Watch this space ... is what I’d say. We’re doing work with the banks, so I can’t give you a conclusive answer on that until we get a response.”

Bligh said the banking industry was willing to work with the government and regulators to get more people into homes but needed to safeguard against financial hardship at the same time.

“Those obligations help protect consumers, and banks take their responsible lending obligations incredibly seriously,” she said.

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