Share this @internewscast.com
Australians yet to pay off government-funded university and higher education debts are set to be hit with the biggest indexation increase in over a decade.
Almost three million people with HECS and HELP debts will have more to repay when the annual indexation rate is applied on June 1.
Because the indexation rate is closely linked with the rate of inflation, those with debts are set to be slugged by a 3.9 per cent surge – a rise on last year’s rate of just 0.6 per cent.
Ben Nash, founder and financial advisor at Pivot Wealth, said the most concerning factor is that the increase in the indexation rate is higher than the growth in wages.
“So it means that people are going to have to pay more of their salary to have the same impact”.
Nash said that while there would be an increase in HECS debt rate repayments, “in real dollar terms it’s not as much as inflation”.
“It’s only slightly positive because the cost is still going up, but the HECS increases are not as high as increases in a lot of other goods and services,” he said.
He said that people shouldn’t panic about the HECS debt rate rise, which over a ten-year period will be less than 2 per cent.
“Do you have other debts which are running at higher interest rates?” Nash asked.
“Because that’s something that’s important – if people have got personal debt or credit cards you know, average credit card interest rate is 15 per cent which is significantly higher than interest charged on HECS.”
Come June 1, the average HECS debt is set to grow by about $1013.
Currently, the average amount of each person’s debt is $23,685, up from last year’s $23,280.
Jasmine* who studied a Media undergraduate degree at the University of New South Wales said she is considering making voluntary contributions to her $30,000 debt.
“I would only do that if it was strategic for buying a home you know, because I know that the banks take into consideration the repayments that you have to make towards that debt,” she said.
“I wouldn’t rush to throwing money at it, unless it was you know, for a very strategic purpose”.
Nash said that a lot of people with HECS-debt would also be first-home buyers who need to understand the impacts of their debt on their borrowing abilities.
“I think that is quite important because property is one of the biggest money moves that younger people make so setting yourself up for the best outcomes there will make a huge difference in your financial position over time,” he said.
The finance expert said the key is for people to understand their debt and the trade offs they may face.
“You know, if you go down one path, what does it mean? What are the positives, what are the not so positives? If you go down a different path, what does that mean?” he said.
In pictures: The Federal Budget newspaper front pages
“And then you can make an informed conscious assessment as opposed to just not thinking about it and putting it off until years into the future”.
You can check the balance of your HELP debt by logging into the ATO service in MyGov.
You can access your HECS-HELP debt balance on the opening screen, where you have the option of making voluntary repayments.
If your payment arrives after the June 1, it will be applied to your balance after the 3.9 per cent indexation is applied.
*Name changed for privacy purposes
The information provided on this website is general in nature only and does not constitute personal financial advice. The information has been prepared without taking into account your personal objectives, financial situation or needs. Before acting on any information on this website you should consider the appropriateness of the information having regard to your objectives, financial situation and needs.