A huge delay is looming for nearly three million Australians and they are being urged to enter quickly to avoid being bitten.
A huge delay is looming for nearly three million Australians struggling with student debt, who have just six days before they face a steep payment hike.
From June 1, the indexing rate applied to HECS-HELP loans will increase to 3.9%, the highest rate in a decade.
Last year, the rate was only 0.6%.
The average HELP debt is $23,685 based on Australian Tax Office 2020-21 data, which suggests the average debt will increase by around $923 on June 1.
Sydney Golden Eggs financial adviser Max Phelps advised those with student debt to come in before the deadline and pay it off or pay it off, if they can.
But he added that young people should consider debt in the context of their other goals.
“If paying off a student loan suddenly means you don’t have a deposit for a house and you have to buy a house, then obviously it’s a bad idea to do so,” Mr Phelps said.
“And if you have a personal loan that bears 10% interest, or credit card debt at 20%, then obviously you shouldn’t pay it back.
“There is no point in taking money out of a credit card by 20% to save 3.9% HECS growth.
“We don’t want people going into debt so they can pay their HECS.”
But for those with extra cash or who could pull on a mortgage offset account with an interest rate significantly lower than 3.9%, “this is the week to pay it off.”
ANU economist Professor Bruce Chapman, whose research interests include student loans, said the increase was “not very significant at all for students” and should be ignored.
Professor Chapman said indexation meant that the real value of the debt had been adjusted for inflation and over time graduates’ salaries would rise by the same amount.
“They haven’t done it recently, but generally they do. It’s only been in the last year or two that there’s been a slight decline in wage growth relative to price growth,” he said.
Professor Chapman said the debt would only affect a student in the final stages of paying it off, which would take him a bit longer to settle.
“What this is going to do is add 3.9% to the extent of debt you owe, which will add a very short period of time, a month or two, maybe more, but not much, the length of time you pay the debt. ,” he said.
“It has next to nothing to do with a graduate’s situation and even for those whose salaries are not rising as fast as inflation, it adds next to nothing to their lives except adding a very short period additional reimbursement.
“But if wages continue to increase by the same amount, everything cancels out.”
According to the ATO, 2.9 million people had outstanding HELP debt in 2020-21, with outstanding HELP debt reaching just over $68.7 billion, up from $66.4 billion in 2019-20. .
Mr Phelps said those who had paid off their student loans were often viewed more favorably by home loan providers.
“Often, as soon as they’ve paid their HECS, their upkeep capacity increases, which means they can buy the property they wanted to buy and haven’t had to wait another six months to save or wait for a salary increase,” he said.
“It may actually increase borrowing capacity by having HECS debt longer.”
Although student loans do not bear interest, the debt is indexed annually according to the consumer price index, which measures inflation.
Inflation is currently 5.1% per year and wages are not keeping pace.
Wages rose 0.7% less than expected from January to March and 2.4% over the past year, Australian Bureau of Statistics data showed this month.
Students can start paying off their HELP debt through their taxes once they earn more than $47,014.
They can make voluntary refunds at any time, in addition to mandatory refunds.
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