If you’ve been keeping an eye on the news, you will have heard that inflation is on the rise, and with that comes an increase in the indexation rate for HECS-HELP loans. From June 1 2022, the indexation rate rose to 3.9%. To give you some perspective, in 2021 the rate was as low as 0.6%.
What exactly is HELP debt?
HELP stands for Higher Education Loan Program. Available to Australian citizens, permanent visa holders and some New Zealand citizens, HELP loans allow students to defer paying their course fees until they earn over a certain amount in income per year. In 2022, students start repaying their HELP debt through their taxes once they earn above $47,014. Mandatory repayments begin at only 1%, with the repayment rate scaling up as the student’s wages increase. Students can also make voluntary repayments at any time, in addition to these compulsory repayments.
It’s important to note that students aren’t charged an index on a HELP loan, however the remaining HELP debt is indexed once a year to maintain its real value by adjusting it in line with changes in the cost of living – as measured by inflation.
What does this mean for your child?
First of all, tell them not to panic. While the indexation rate has increased, there is generally a very strong correlation between inflation and wage growth. While there may have been a sudden increase in inflation recently, we can expect wages to rise accordingly in the years ahead.
While no one wants to accrue a debt, remember that university is an investment in your child’s future, and the benefits of having a university degree will far outweigh the additional cost incurred with the increased indexation rate.
Australian students are fortunate to have Commonwealth Supported Places for many university degrees, which means the cost of their education is subsidised by the Government and is significantly lower than the cost of a university education in many other countries around the world.
So, what should your child do?
If possible, your child could pay down their loan or pay it off completely. But that may not be an option for many students.
It’s important to consider other priorities and personal circumstances your child may be facing. For instance, if they’re saving for a house and they need that money for a deposit, it’s probably best to keep that money to purchase a home. If they have a credit card debt with a 15% interest rate, it may be better for your child's money to be spent on that debt instead. A 15% interest rate is much larger than a 3.9% increase in their HELP loan.
While it may feel like a bit of a hit now, over time, graduate wages should increase by the same amount so the increase in indexation now should level out, causing little to no impact on your child’s future.
What other help is available?
Students can apply for scholarships and bursaries to support their studies financially. Scholarships and bursaries are awarded to people from all backgrounds and study areas and are not just for high academic achievers. They can also be awarded on academic performance sporting achievements or community service, or a combination of all these things.
Applying for a scholarship is really easy. By completing just one form, your child can apply for most scholarships and bursaries at USC.
For more information on the cost of study, visit the fees page on the USC website.
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