The Impact of HECS Debt on Graduates’ Borrowing Power
The average HECS debt can reduce your borrowing power by almost $100,000.
The Impact of HECS Debt on Mortgage Borrowing Capacity
As political parties debate the future of HECS debt, new figures show paying off a HECS loan may impact graduates’ borrowing power for a mortgage by almost $100,000.
Research from Compare the Market revealed that a university graduate on a salary of $125,000 paying off an average HECS debt of almost $26,500 would have a reduced borrowing capacity of $95,900.
Graduates earning $100,000 would be $56,300 worse off in gaining finance if paying off their HECS. The borrowing capacity of those on $75,000 be reduced by $26,800.
- Banks consider a mortgage applicant’s debt-to-income ratio before lending them money.
‘The harmless image has started to change’
The federal government announced in October that changes to the HECS system could be on the horizon if Labor wins the next election.
The Greens have proposed a $74 billion plan to scrap all student debt, emphasizing the potential impact on negotiations in a hung parliament scenario.
Compare the Market economic director David Koch highlighted the longer-term consequences of not paying off student debt.
Indexation levels for HECS debts grew to 7.1% in 2023 due to high inflation, impacting the amount owed by graduates.
- Indexation aims to preserve the real value of a student’s education, adjusting debts annually based on inflation.
Longer Time to Pay Off HECS Debt
People are taking longer to repay their student loans, with the average time increasing from 8.2 years in 2011-2012 to 9.5 years in 2021-2022.
Higher income earners may face more restrictions on their borrowing power due to HECS debt compared to lower income earners.
The Independent Tertiary Education Council Australia believes that government plans to reduce student debt do not go far enough in reforming the sector.
HECS Debt’s Impact on Borrowing
According to digital mortgage broker Finspo, lenders consider a person’s HECS repayments when assessing their eligibility for a loan.
In 2022, Australian Prudential Regulation Authority updated lending standards to include consideration of HECS/HELP in loan assessments.
A review by the Australian Universities Accord panel called for a reassessment of bank lending practices regarding HECS loans to prevent undue restrictions on borrowing capacity.
Conclusion
HECS debt can significantly impact graduates’ ability to secure a mortgage, with higher income earners facing greater restrictions on borrowing power. As political parties debate potential reforms to the HECS system, the long-term consequences of student debt are under scrutiny.
FAQs
How does HECS debt affect borrowing power?
HECS debt can reduce borrowing capacity for a mortgage by almost $100,000, with higher income earners facing more significant limitations.
What are the proposed changes to the HECS system?
The federal government and the Greens have proposed reforms to the HECS system, including potential debt relief and adjustments to indexation levels.