First home, not HECS: Parents not helping with student debt despite hikes

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Parents looking to give their children a helping hand financially are sticking with helping them with a home deposit rather than with their student debt, regardless of predictions the rate of annual indexation could be high for years to come.

Student debt, though indexed in line with inflation, was not much noticed when inflation was low, as it was generally considered the cheapest debt anyone could have. But following the spike in the indexation rate applied to the debt, that changed.

When the indexation rate jumped to 7.1 per cent on June 1 this year, almost twice the indexation rate of 12 months earlier, social media lit up with students and former students complaining about how much their debt had risen.

Social researcher Mark McCrindle says parents are more supportive of helping their children onto the property ladder than helping them pay down student debt.Credit: Louise Kennerley

However, the parents of those who hold the debts, who have the financial capacity to help, appear to be more inclined to help their children into the property market than pay off their debts, says Mark McCrindle, social researcher and founder of McCrindle Research.

“Parents don’t seem, even now, to be in any hurry to help out [with student debt]. At least we are not seeing that in our research, but they are definitely engaged in wanting to help their children get onto the property ladder,” McCrindle says.

Parents probably reason their children’s salaries will increase and their children’s student debt will reduce over time, he says.

The student loan system, known as HECS-HELP, is widely considered to be fair as the debt is repaid only once income hits a certain threshold. Voluntary payments can be made.

However, economists say that inflation, though coming down, could stay higher for longer. That would result in student debt being indexed at a higher-than-usual rate, even if less than the 7.1 per cent that was applied on June 1.

In fact, it could be years before inflation returns to the Reserve Bank of Australia’s target annual rate of between 2 and 3 per cent, on average, through the cycle.

Students have been racking up more HECS-HELP debt even before the indexation rate started ramping up.

In 2021 the fees for degrees changed to encourage more students to study specific fields that the government considered to have more job opportunities. The cost of some degrees increased dramatically, others become cheaper, and some did not change much at all.

HECS-HELP repayments and repayments of training loans are not required to be repaid until a person earns an annual income of $51,550 during a financial year, with the percentage payable increasing in bands the higher the income.

The Australian Taxation Office calculates compulsory repayments each year and includes it on the person’s income tax notice of assessment automatically.

Someone on a typical graduate income of $70,000 a year would pay $2100 towards their debt during 2023-24. However, on a typical debt of $30,000, this would constitute just 7 per cent of the debt, which is about equal to the indexation rate applied on June 1.

Student debt is considered by lenders in home loan application assessments, with the potential to reduce how much can be borrowed. Nevertheless, McCrindle says it appears parents are more interested in helping their children into the property market.

Parents who support their children to buy a property are sometimes also thinking about their future grandchildren, too, as they want them to have stability in where they live, he says.

McCrindle says some parents likely think that if they help their children into the market their children will be able to live closer to them, rather than buying further out where prices are lower.

• Advice given in this article is general in nature and is not intended to influence readers’ decisions about investing or financial products. They should always seek their own professional advice that takes into account their own personal circumstances before making any financial decisions.

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