If you attended university in Australia it is very likely that you have a help debt formerly known as a hecs debt. In fact, three out of four Australians will use this system to fund their university, unless you are in the 25% who are lucky enough to have parents who can afford to pay for your university. Looking around the world at some of the other student loan systems we are relatively lucky in Australia comparatively. Some of the stories out there regarding student loans in the USA are insane. People taking out loans with an 8% interest rate and being saddled with a huge debt and a low-paid job after graduating. Other people had co-signed their child’s student loan only to have the child default on payments leaving them holding responsibility for repayments on the loan. Luckily for us, in Australia, help debts work differently from a normal loan.
What actually is a Hecs/Help debt?
“Hecs-Help is a scheme that assists eligible Commonwealth supported students to pay their student contribution amount with a loan. Help loans are available at all public universities and at a handful of private higher education providers.” Basically, the Australian government foots the bill for your education and then you pay them back. The method of repayment is a little different from a normal loan. You repay the loan through the taxation system every year once your income passes a certain threshold which is currently $46,620 per year. The loan also does not have an ‘interest rate’ as such, however, it does get indexed annually against inflation. When you put this in perspective if this might not sound like a lot but if you are not making any repayments, it does start to add up and your principal loan amount will increase.
As with everything in modern life the average size of help debts hasve tripled since 2005. Increasing from an average of $8500 in 2005 to $23,685 in 2021. They are also tipped to keep rising due to the government changes in pricing for certain courses. Arts and humanities courses have increased and science-based courses have decreased slightly in price. You can check your debt on mygov if you are wondering how much you currently owe.
The outstanding student debt in Australia has now grown to $66.4 billion in the past decade alone. The repayments are calculated on a sliding scale as your income increases. 1% of your salary goes toward repayments once you reach $46,620 per year. (side note, if you are choosing a degree that results in a salary of less than $46K per year then maybe investigate alternative work pathways) This increases to up to 10 percent repayment once your income hits $136,740 per year. A few years back if you worked overseas you did not have to make repayments no matter what your income was, however that is no longer the case.
Does my Help debt affect my home loan application?
A common financial myth that is sometimes spouted is that a help debt doesn’t ‘matter’ when applying for a home loan. But the truth is, it does. It is certainly not in the same basket as a credit card debt or a car loan but it is still viewed as a liability by the bank. It will still be taken into consideration when the bank is calculating how much they are willing to lend you. So whilst it is certainly a debt that is not going to be detrimental to your home loan application, it is still considered. The circumstances of someone earning a 100K salary with a 30K hecs debt is different to someone earning a 55K salary with the same debt. The good news is that help debt will ultimately be cleared when you die.
The average time to repay a help debt is 9.3 years, with an average of 5.5 years before wages hit a threshold sufficient for compulsory repayments to start. Overall though the research does tend to indicate that over the course of lifetime earnings in Australia, someone with a bachelor’s degree will earn more than someone without, although the gap is shrinking. You are also able to make extra payments to your help debt although depending on your financial circumstances, your money is probably better off invested elsewhere.
With more and more young people opting to go straight from high school into university, it is important to really understand the repercussions. Help debt is not a ‘bad’ debt, not at all. Getting a tertiary education can set you up for success and a well-paid career for the rest of your life. However, it is important to make sure you have researched the degree you are going to be studying and the likely job prospects. It is also important to understand that if you fail a unit at university you still have to pay for it and for any subsequent attempts. This all accumulates into your help loan. Think about this when choosing the course to study. Reach out to someone who is in their first or second year and ask them what the course is like. What kind of topics are covered and what has been their experience with the difficulty level.
People choose to go to university for many different reasons. However, the main reason to accrue 30K in debt should be because “the career is well paid.” As corporate and soulless as that sounds, it is the truth. A solid income and stable career are some of the most important tools in your financial arsenal to achieve your financial goals. Keep that in mind when deciding on whether university is the right pathway for you & when deciding on which course to study. Expecting to know what your career path will be for the next 40 years at the age of 18 is probably a bit unrealistic. However, from a financial perspective, you probably don’t want to start accumulating debt for a degree that you decide is not really your passion. Or even accumulating debt for a degree with low-paid career prospects.
University will always be available to you, no matter what age. So if you are not ready to take on the financial commitment of a 30k help debt, there is no shame in taking a year or two off and entering the workforce. There are many well-paid career opportunities that do not require a university degree. You might be surprised how far up the ranks in a company you can go purely based on your work ethic and on-the-job experience. Tertiary education can be a great pathway but it is not something to be decided on a whim and it is not a golden ticket to a 100K per year salary. Do your research and be committed to your decision to ensure you can avoid accumulating unnecessary debt for a salary that does not require it.
