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HECS-HELP Debt Indexation to put Australians further out of reach of home ownership

Updated 30/05/2023
HECS-HELP Debt Indexation to put Australians further out of reach of home ownership

Analysis from personal finance marketplace and advice company Compare Club reveals that a HECS-HELP debt will cut, on average, $15,000* from a graduate’s borrowing power or more than $100,000** from a higher earner with more debt.  That means, anyone looking to get onto the property ladder may not be able to afford the home they have their heart set on.

On June 1, university HECS-HELP debts will automatically increase when they are indexed to inflation, by 7.1% and Australians are being warned that more debt isn’t the only thing they should be worried about. 

On top of 11 interest rate hikes, it’s an additional blow to prospective home buyers. HECS-HELP was only made compulsory in home loan application assessments last July, meaning next month’s student debt increase adds another financial blocker to get on the property ladder that they didn't face 12 months ago.

This also affects older mortgage-holding Australians with 12.5% of people with a HECS-HELP debt being in their 40s, which will now be taken into account if they try to refinance. For those homeowners at the edge of a fixed rate expiry cliff with student debt, June's HECS repayment increase could push them further towards mortgage prison through no fault of their own.

HECS-HELP debt impact on borrowing capacity***
HECS-HELP debt impact on borrowing capacity***

Compare Club Co-CEO Lance Goodman said, the limiting factors don’t end there. 

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

“In this scenario, this meant our average graduate could only get a loan at 5.89% but without HECS, they would have been able to shave 0.45% off this rate and get a 5.44% loan.  So HECS is now not only restricting borrowing power, it restricts your options and increases your repayments. This means graduates face a triple whammy of restrictions when they look to get a mortgage.”

Anyone who earns more than the $48,361 threshold automatically pays off their student debt through compulsory gross income payments, however those repayments are not deducted from the total debt in real time. It’s instead consolidated at tax time, meaning that the indexation rate is applied to the full debt owing, not taking into account any repayments deducted from incomes.

Media enquiries Marietta Delvecchio Media + Capital Partners press@compareclub.com.au

NOTES TO EDITORS *$15,000 average based on an average graduate wage of $69k and $22k of HECS-HELP debt, with a 20% deposit looking to buy a $656k home.  ** $100,000 impact based on assumption of extended years of study / high value degrees and debt ***All examples consider a 20% deposit for a $656k property and No other debts (BNPL, Credit Card, Personal Loan, Car Loan) ****Person A: $90k wages and $66k HECS debt + Person B: $70k wages and $22k HECS debt