As political parties new figures show paying off a HECS loan could have an impact of almost $100,000 on graduates’ mortgage borrowing power.
A Compare the Market study found that a university graduate with a salary of $125,000 paying an average HECS debt of almost $26,500 would see their borrowing capacity reduced by $95,900.
Graduates earning $100,000 would be $56,300 worse off financially if they repaid their HECS. The borrowing capacity of those with $75,000 is reduced by $26,800.
This is because banks take into account the mortgage applicant’s debt-to-income ratio before lending them money.
“The harmless image began to change”
The federal government announced in October that if Labor wins the next election.
The Greens went further, ehpoint out that the proposal would be a key point in the negotiations in the event of an election of a hung parliament.
Market Economic Director David Koch said failing to pay off student debt could have longer-term consequences.
“Historically, HECS has been seen as a benign debt that you gradually repay through your salary. There is no interest on the loan, there is no deadline, and it is the only debt canceled upon your death,” he said.
“But this innocuous picture has begun to change in light of the enormous sums that are added to the debt each year due to indexation.”
Indexation levels reached 7.1 percent in 2023 due to high inflation.
Indexing aims to preserve the true value of a student’s education, regardless of the time it takes to repay. This means that the amount owed by a graduate increases with inflation.
HECS debts are indexed on June 1 each year following the release of the March quarter Consumer Price Index (CPI) — in the cost of household goods and services.
In May, the government announced its intention to If his bill – currently before the Senate – is adopted, indexation will be based on either the CPI or the wage price index, whichever is lower.
The Wage Price Index measures how median wages have changed over time and has increased 24 to 30 percent – depending on where you live – over the past decade.
More time to pay
Koch said people are taking longer to pay off their student loans than in previous years.
“When the average time to repay student debt increased from 8.2 years in 2011-2012 to 9.5 years in 2021-2022, most people will continue to pay hundreds or thousands of dollars more due to indexing,” he said.
“Generally speaking, your borrowing power is reduced by the percentage of your income that you have to pay towards your HECS. Therefore, people on higher incomes might be more constrained by their HECS debt than people on lower incomes.
The Independent Tertiary Education Council Australia says government plans to wipe out a fifth of student debt do not amount to real reform of the sector.
Labor’s proposal would cost $16 billion and wipe about $5,500 off the average HECS debt.
The impact of HECS debt on borrowing is multiplied by ten
According to digital mortgage broker Finspo, the the sum of their HECS reimbursements.
“Before deciding whether or not to give you a loan, lenders look at all the debts you owe and the current repayments you make. This includes things like a credit card, personal loan, car loan and, of course , a HECS debt,” he says.
In 2022, the Australian Prudential Regulatory Authority updated its lending standards, requiring banks to consider HECS/HELP.
But some oppose these standards.
A review by the Australian Universities Accord panel in February called for “a review of banks’ lending practices to ensure that banks recognize that HELP loans are not like other types of loans and do not are not treated in a way that unduly limits people’s borrowing capacity for home loans. .
