It can be a black mark towards a mortgage
Young professionals who have long since graduated from university continue to owe over $23,000 under the Higher Education Loans (HECS) program, numbers show. The last year ending on June 30 saw the average amount of outstanding HECS debt at $23,685 – up from $23,280 the year before – with more than 27,000 people owing over $100,000.
In an interview with the Australian Financial Review, 31-year-old public health promotion graduate Kristy Iervasi estimated she still owed $28,500 despite working part-time and building a small business in Sydney. Like others with outstanding HECS debts, Iervasi had not yet reached the minimum repayment income threshold of $47,014.
HECS-HELP has been called one of the “best debts” to have. There is no deadline to pay it off, it is not charged interest but is indexed to the CPI, and mandatory repayments are only imposed or increased in line with the graduate’s salary.
Despite these, Iervasi describes her HECS debt as a “black mark”, as HECS debts dent people’s ability to get a mortgage.
Pink Finance director Nicole Cannon admitted to the Australian Financial Review that they had “quite a bit” of HECS conversations, where she had to explain how a potential borrower losing around $600 to their HECS monthly repayment – or 10% of their income – lost as much as $150,000 in borrowing capacity.
At the end of these conversations, half of Cannon’s clients would typically decide to pay off the debt and save up for a larger deposit.
Wealthadvice owner Marisa Broome added that while HECS-HELP can be paid off over the course of your life and is never called in by the government, “any debt is not a great debt – even debt that’s tax deductible for you, which this debt isn’t.”
“You’ve got to look at debt as part of an overall picture,” Broome said. “If it’s going to … stop you from being able to save money for a deposit or have more cash flow ready for buying a house, then you really do have to reconsider.”
As inflation hit 5.1% last April, graduates have become increasingly worried about the indexation charge, and whether it would be better to pay off their debt early.
The consensus among graduates set to pay off the debt this year is to pay it off before the indexation is applied in the one-off sum in June, the Australian Financial Review reported. Otherwise, graduates should leave the debt be.
