Increases in cost of living and your HECS/HELP Loan

This article was written by one of La Trobe’s Financial Counsellors

In addition to coping with increases in cost of living and housing/rental affordability, students are now faced with inflation at 7.1% this year affecting their HECS/HELP loans.

Some students are worried about whether they should try to pay a contribution to these loans even though they may not be able to afford to do so.

As Financial Counsellors we are not licensed to give financial advice and every situation is different, so we would just like to bring to your attention the latest information and articles on the topic to help you consider your options.

About HECS/HELP loans:

• HECS/HELP loans are available for students who are eligible for a Commonwealth-supported place
• Interest is not payable on these government loans, but they are subject to inflation
• These loans have often been referred to as ‘good debt’ as they are considered an investment in your future capacity to earn
• You are only expected to pay the debt off gradually through the taxation system once your income reaches a certain threshold, this is currently $48,361
• For more information on repayment thresholds and rates see the ATO tax calculator website

Why the concern now about repaying HECS/HELP debt?

For several years inflation has been extremely low, so the overall HECS/HELP loan has not been greatly affected, however with inflation predicted to be about 7.1% in 2023, this means the cost of these loans is likely to be increased accordingly and if inflation continues to be high for several years, this will continue to affect these loans. There have been several demands for inflation to be abolished on student loans, but there is no obvious movement on this to date.

So, what are some of the commentators saying?

Below are a number of articles to inform you on the topic and help you consider what is best for you and your circumstances:

• Help! Should Australians rush to pay down student loans before indexation? – The Guardian

• HELP debt is rising 7.1% in June. Should you pay it down early? – ABC Everyday

• Millions of Australians face higher Help and Hecs debts: see how inflation will change your student loan repayments – The Guardian

Hear what Scott Pape, from weekly email column The Barefoot Investor had to say when asked whether people should rush to pay back their HECS/HELP loans:

Now the whole concept of inflation can be a really hard one to get your head around … but HECS debt lays it bare in all its brutality: For many years the indexing has been bugger all (in 2021 it was 0.6%) – yet this year it’s a whopping 7.1%. So, have I changed my mind: should you make extra repayments? Well, that’s obviously totally up to you. However, I’d pay back any bank debt (that attracts an interest rate) first before you repay any HECS debt. Given that HECS is an income-contingent loan (i.e. you only start repaying it once you earn $48,361), I’d be more inclined to put your money in Mojo as a buffer, than make a voluntary extra repayment to the government.

Scott Pape, The Barefoot Investor

Financial Counsellors at La Trobe

If you want to further understand or discuss your options in relation to HECS/HELP debt or are struggling with the cost of living or any other financial issues, do not forget to contact your Financial Counsellor who will help you in working your options.

For more information on the range of services Financial Counselling can provide and/or register for an appointment, visit our Financial Counselling website.