HECS debt: Inflation means it’s rising, taking longer to pay off

If you went to university in this country, you probably have a HECS/HELP debt. And they are getting much harder to pay off.

Not only are HECS debts much bigger than they were in the past as the cost of uni rises, but the rate of indexation goes up with inflation, meaning it is possible to pay thousands towards your HECS debt and still not make it get any smaller.

As the next chart shows, HECS debts are far bigger now than they were back in the early 2000s.

The height of the line shows how many people have a HECS debt corresponding to the value on the horizontal axis. The top lines represent more recent year, and these days, there are far more people with HECS debts between $10,000 and $100,000, whereas in 2005-06 (the bottom line) it was more common to have a lower debt of just a few thousand dollars. (Note that the horizontal axis is compressed using a log scale.)

You might notice the top line on the above chart goes off to the right, way beyond $100,000. That’s what forced me to make the X-axis a log scale: there are now two people with HECS/HELP debts of over $400,000 in the data.

I don’t know who they are or what they’ve been studying but they collectively owe over a million dollars in HECS! In fact, despite the loan limits the government has introduced, nearly 30,000 people owe over $100,000 in HECS. That’s going to take a while to pay off!

Creeping up

HECS was introduced back in 1989. The fees were small – just $1800 a student per year. You had to start paying it back if you earned over $22,000 a year. Now the fees are higher – as much as $4000 for a single medicine subject. You will trigger the repayment thresholds in 2022 if you make over $48,361.

I remember when I paid my HECS off, the relief of getting that extra money in my pocket instead of paying it to the government each week, it was huge.

But people with HECS debts now have it harder. They rose by 3.9 per cent on June 1, in line with inflation. Inflation has been high and is forecast to get higher, which means the indexation next year will be even higher. If you are not chucking a lot of money at your debt, it could be getting out of hand.

As the next chart shows, the people most likely to have HECS debts are young women who live in Melbourne: 50 per cent of people in that demographic have debts. Unsurprisingly, 70-year-old men, no matter where they live, are the opposite.

One of the interesting things the next chart reveals is that people who live overseas have had their HECS debts catch up to them. While most 30-34 year olds are starting to get on top of their debts, Aussies living overseas are more likely to debts in their 30s.

For a long time, the ATO didn’t pursue those debts when people were overseas, but since 2017 they have been on the trail, creating a rude surprise for expats who now have to send money home each year.

The HECS limit is around $100,000 for most people but it is over $150,000 for people studying to go into medicine or aviation. So it is no surprise they regularly show up as having some of the highest debts. While doctors have had a busy few years, it has been lean time for pilots, with many possibly falling below the repayment thresholds. The following chart is made from pre-pandemic data but I suspect there would be a few pilots whose debts went up a lot over the period where planes were grounded.

As the chart above shows, there’s many people in the middle income bracket still struggling away against their HECS/HELP debts, but there are still a handful in the top tax brackets with some hefty debt to repay for their educations. There are also and plenty of people on low incomes who won’t make the repayment threshold and -unless they can manufacture a voluntary repayment somehow – will probably see their HECS go up. The high inflation rates of the pandemic mean more and more Aussies won’t be making progress in paying off their HECS.

Jason Murphy is an economist | @jasemurphy. He is the author of the book Incentivology.

Originally published as Inflation is terrible news for anyone with HECS debt