More than 3 million Australians will see their student debt rise in line with inflation tomorrow, adding more than $1,000 to the average loan and sparking warnings of a lifelong impact on borrowing capacity.
Indexation of 7.1 per cent — the highest in more than three decades — will be applied to more than $74 billion in outstanding HECS-HELP and vocational education loans.
For the past decade, indexation averaged 2 per cent per year.
Lending institutions consider HECS-HELP debt in the same way as other personal loans and credit cards when evaluating a client's ability to service a loan, and it features in debt-to-income ratio calculations.
Independent education-focused financial institution Futurity Investment Group has analysed HECS-HELP debt levels and outcomes, most recently through a survey of 1,000 current or past university students.
It has found the average time to repay a debt is nearing a decade.
Student debt reduces borrowing power
Group executive Kate Hill said rising student debt, coupled with the increasing cost of living, had made it increasingly difficult for university-educated Australians to become homeowners and realise other goals.
"Buying a first car, buying a home, starting a business — those sort of financial decisions that more often than not require borrowing for young people — just won't be available because of the level of debt they will have sitting there because of their education," Ms Hill said.
"There are a whole lot of issues converging that mean, we believe, we'll see a very limited ability for many people to be able to access borrowing as and when they'd like."
Ms Hill said the high rate of indexation would have an ongoing impact on graduates' life decisions.
"Many graduates and current students view HECS debt as cheap, interest-free loans, however, with these indexation levels, it's a view that's clearly flawed in this new reality," she said.
"There will be long-lasting financial and social implications, and it impacts things like their ability to achieve those key life goals like getting married, starting a business, starting a family.
"University-educated females have more HECS debt and earn less than their male contemporaries, and when we think about indexation for a cohort finding it more difficult to pay down larger amounts of that debt, you can see that gap will continue to widen."
Ms Hill's study found 59 per cent of respondents reported student debt had impacted their ability to buy a home, with 51 per cent still repaying debt in their 40s.
Of the 3 million Australians with HECS-HELP debt, 60 per cent are female and they hold 58 per cent of the total debt.
Sophie Valstro has a bachelor of music, and is halfway through a master of divinity after an earlier change in degree.
It has meant her HECS debt has passed $80,000.
She and her husband were planning to purchase their first property in the next three years, but the high — and rising — debt is expected to make attaining a mortgage more difficult.
"We might not be able to get much of a loan until it is paid off, so that would push things back," Ms Valstro said.
"It already felt like a lot to pay off when I'm expecting to be in not-super-well-paying jobs, and it feels like it's going to be around forever now.
"I love studying, but it definitely is a big roadblock to doing that."
Debt deterring students from future study
A recent Senate inquiry into a Greens proposal to freeze indexation and raise the threshold at which compulsory repayments begin received 63 submissions.
Business graduate and first home buyer Tyler Thurston wrote to the inquiry, highlighting the impact of growing debt on his ability to complete further study.
"I feel like all my debts which are considered regular factors of life — student debt, home loan et cetera — are sending me further and further backwards," he said.
"My ability to upskill and further undertake education is limited by the fact that I do not wish to add to this debt, such as a graduate certificate I recently identified worth $7,500 for a four-course program.
"I am concerned that young people, and in fact all Australians, will be reconsidering their desire to seek further education to the benefit of our national capability due to the increasing costs of maintaining a student loan."
Crossbench calls for last-minute intervention
A team of federal crossbenchers has appealed for the government to urgently intervene to stop the indexation.
Senators Mehreen Faruqi, Tammy Tyrrell and Lidia Thorpe joined lower house MPs Sophie Scamps, Andrew Wilkie, Kylea Tink, Helen Haines and Dai Le in co-signing a letter to Education Minister Jason Clare and Prime Minister Anthony Albanese.
The letter said indexation was causing debts to increase faster than they could be paid off.
"Student debt is becoming a lifelong burden for too many," the letter read.
The government has said it has no plans to pause indexation.
Mr Clare said the government was considering higher education affordability and access as part of the Universities Accord.
"The accord panel will provide an interim report to government next month and a final report to the government at the end of this year," Mr Clare said.
"It's important to remember that HELP loans are not required to be repaid until a person reaches the income repayment threshold.
"HELP repayments are a set percentage based on your income. They don't go up unless your salary does.
"It's built on a really important principle – you pay what you can afford. And you don't pay more unless you earn more.
"It's this system that has helped the number of Australians with a university degree jump from 7.9 per cent to 32 per cent in the past 30 years."
