Your Student Loans and the Effects of Inflation

With HECS-HELP debt surpassing $68.7 billion, Australians are trying to find ways to understand and accommodate the recent spike in what they owe in student loan debt

A Look at the Issue

Overall, about 2.9 million Aussies are facing outstanding HECS-HELP debt. From 2021 alone, the indexation rate has made a blinding jump from 0.6% to 3.9%. Your indexed rate is just your interest rate. However, these values are directly linked to specific benchmarks given the nature of the funds borrowed…in this case, student loan debt. What this means is that your student loans are going to be indexed based on inflation. 

Basically, instead of interest, indexation is going to be added to the debt that you owe every June. This model is significantly more popular than systems that charge accruing interest every month and it’s adjusted based on the changes that occur in the cost of living throughout Australia. 

While this is the case, there is still an increasing number of Australians facing unpaid HECS-HELP balances leaving citizens wondering what their best course of action would be without putting themselves into more debt. 

In Simpler Terms…

In short, your rate is going to be based on the consumer price index which is what measures the cost of living throughout the country. Pre-pandemic, the indexation rate sat at about 2% which is slightly less than half of the current rate today. This has become an issue and will remain one until the rate of inflation starts to go down. 

With this though, Australians are going to have to brace themselves because the predicted inflation rate is expected to hit an all-time peak of 6% or 7% by the end of 2022. The thing with this is that inflation isn’t expected to decrease until potentially mid-2024. Even then, the rate will drop to 3% which is still only slightly lower than what it is today. 

Even with inflation spikes and hard-to-handle student debt, Australia’s economy itself is quite neutral. However, inflation is working as a contributing factor to a predicted potential recession. Although Australia has made its way out of two different episodes of recession in the past 50 years or so, the average HELP balance for Aussies is around $15,191. 

Student loan debt is increasing and that value does not apply to everyone and here’s the thing, repayments for student debt are only activated once a citizen that has an active loan makes a salary of $47,000 or more. With the average Australian citizen making just over $60,000 annually, this has created an inevitable problem for the majority of Aussies that haven’t already paid off their student loan debt and unfortunately those numbers are increasing which becomes a problem for everyone.