A huge deadline looms for nearly three million Aussies and they are urged to act quickly to avoid getting stung.
Nearly three million Aussies saddled with student debts are facing a huge deadline, who have only six days left before they are plagued with a major payment hike.
From June 1, the indexation rate applied to HECS-HELP loans will increase to 3.9 percent, the highest rate in a decade.
Last year it was only 0.6 percent.
The average HELP debt is $23,685 based on data from the Australian tax office 2020-21, suggesting that the average debt will increase by about $923 on June 1.
Financial advisor at Sydney’s Golden Eggs, Max Phelps, advised people with student debt to come in before the deadline and pay it off or pay it off, if they could.
But he added that young people should see blame in the context of their other goals.
“If paying off a student loan suddenly means you don’t have a down payment on a house, and you have to buy a house, then of course it’s a bad idea to do it,” Mr. Phelps said.
And if you have a personal loan with an interest rate of 10 percent, or a credit card debt of 20 percent, then of course you don’t have to pay it off.
“There’s no point taking money from a 20 percent credit card to avoid a 3.9 percent growth in HECS.
“We don’t want people to take on other debts so they can pay their HECS.”
But for those who have cash to spare or who can withdraw money from a mortgage account with an interest rate significantly lower than 3.9 percent, “this is the week to pay it off”.
ANU economist Professor Bruce Chapman, whose research interests include student loans, said the increase “wasn’t important to students at all” and should be ignored.
Professor Chapman said the indexation meant that the real value of the debt had been adjusted to account for inflation and that over time, graduate wages would increase by the same amount.
“They haven’t recently, but in general they have. It has only been in the last two years that there has been a slight decline in wage growth compared to price growth,” he said.
Professor Chapman said the debt would only affect a student in the late stages of repayment, taking a little longer to repay.
“What this is going to do is add 3.9 percent to the amount of debt you owe, which will add a very short period of time, a month or two, maybe more, but not much to how long you pay off the debt. ” he said.
“It is virtually irrelevant to a graduate’s situation and even for those whose wages may not rise as fast as inflation, it does almost nothing to their lives except for a very short period of extra repayment.
“But if wages continue to rise at the same rate, everything will be negated.”
There were 2.9 million people with outstanding HELP debt in 2020-21, with outstanding HELP debt rising to just over $68.7 billion, up from $66.4 billion in 2019-20, according to the ATO.
Mr. Phelps said those who paid off their student loans were often rated more favorably by mortgage loan providers.
“Often once they pay off their HECS, their usability jumps up, meaning they can buy the property they wanted to buy and not have to wait another six months to save for it or wait for a raise,” he said. .
“It can actually increase borrowing capacity by having HECS debt for longer.”
Although student loans do not yield interest, the debt is indexed annually according to the consumer price index, which measures inflation.
Inflation is currently at 5.1 percent per year and wages are not keeping pace.
Wages rose 0.7 percent lower than expected from January to March and 2.4 percent in the past year, data from the Australian Bureau of Statistics showed this month.
Students can start paying back their HELP debt through their taxes, once they earn more than $47,014.
In addition to the mandatory repayments, they can voluntarily repay at any time.
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