24,000 graduates owe the ATO more than a $100,000 house deposit
You're saving for a house deposit but you still owe the tax office $100,000 for your uni education. This is the reality for tens of thousands of Aussies right now. In this blog we look at the costly business of getting a degree.
Residz Team 3 min read
You're saving for a house deposit but you still owe the tax office $100,000 for your uni education. This is the reality for tens of thousands of Aussies right now. Even the average student loan takes nearly a decade to pay off. In this blog we look at the costly business of getting a degree.
It’s hard to secure a cheap bank loan when you have a lot of debt. So it’s a shock to know how many adults are in debt to the ATO for over $50,000 thanks to their student loans.
More than a quarter of a million are.
That’s right. Latest figures from the Australian Taxation Office show more than 256,000 adults in 2020 were having to cough up repayments on Higher Education Loan Program (HELP) debts of $50,000 or more.
More than 24,500 of them had eye-boggling amounts of student debt of over $100,001. With the median price of an Australian home now over $1 million, this debt is the equivalent of a 10% house deposit. HELP is a very apt new acronym for what used to be called HECS.
Given many mortgage lenders look at HELP loans like any other debt, this may impact the borrowing power of a lot of former students when they go to buy a home. They are already unable to access as much money as before, thanks to recent changes by the lending regulator APRA on how much borrowers can borrow from a bank.
The average size of a student HELP debt is $23,280 and on average debtors are taking longer to pay back their debt. In 2019-2020 they took 9.3 years to pay it off, up from 9.2 the year before.
This could be for a number of reasons:
- Students owing money don’t have to pay off their debt until they start earning above $46,620 per year ($47,014 for the 2021/22 financial year), when they hit the 'compulsory repayment threshold'. Depending on how much they earn, they pay 1% to 10% of their income.
- Lockdowns and Covid restrictions stopped many from working in hospitality, the travel industry, as tutors, or cleaning while they studied.
- Rising rents swallowed up any money set aside for debt repayments.
Carrying tens of thousands of dollars of debt into your 30s when you may wish to settle down is anxiety-producing, and frustrating. It shows many Australians are reaching a tipping point where student debtors will opt for a unit instead of a more expensive house. Or, they may have to stay among the 32% of Australian households who rent. Either way, there are plenty of them suffering from the property blues.
All in all, the total amount of outstanding HELP debt owed to the Australian Government is nearly $66.4 billion. International students (who pay higher fees than Australian citizens) cannot get a HELP loan, so this figure doesn’t factor in the debt they owe to universities, banks, or other sources.
But, a study by KPMG shows getting a university degree is still the route to earning more money across a working life. Over 10 years, this wage premium is around 20% for men and around 15% for women.
So, should you pay your HELP debt off early? You would think so, however financial advisor Elizabeth Hatton, in an article for Canstar, recommended debtors consider paying off any higher-interest loans more quickly. It may also be better for your credit rating, she says.
Image: University graduates - Wikipedia
