Australian student loan debt ‘getting higher, lasting longer’

Student loans are preventing Australians from buying homes and starting families, because rising university fees and inflation-fuelled indexation of debts mean people are still paying off their education as they confront major life events.

A survey of more than 1,000 graduates has found that university debt now haunts most students into their forties. Fifty-one per cent of respondents aged over 40 said they still had Higher Education Loan Programme (Help) debts, compared with 48 per cent in a similar survey conducted two years ago.

Almost three-fifths of respondents said student debt had affected their ability to buy homes, compared with one-half in 2020, while roughly one-third said it had harmed their prospects of marrying and having children.

Help debt is also preventing more graduates from changing jobs and careers, buying cars and starting businesses, according to the surveys conducted by financial services organisation Futurity Investment Group.

Futurity executive Kate Hill said 56 per cent of this year’s respondents said they were worried about their financial situation, compared with 25 per cent in 2020. “Debt acquired at university can have long-lasting financial and social implications,” she said.

“The spiralling cost of living and rising interest rates coupled with university debt means it could be impossible for many university-educated Australians to realise their dream of home ownership.”

Ms Hill said that unlike in past decades, Help debt was now routinely taken into account by bank assessors when people applied for car loans or mortgages. She said older Australians should consider putting money aside to help their children and grandchildren pay off student loans that could derail their lives in middle age.

About 50 per cent more Futurity members save money for university rather than school education, she said, even though Australia has no income-contingent loan scheme for school fees.

However, the survey suggests that Australians’ capacity to pay off their Help debt has improved in some ways. While respondents’ average debt balance has risen 10 per cent to A$22,636 (£12,706) since 2020, their average gross earnings has risen 28 per cent to A$80,580.

And slightly more respondents said the benefits of higher education outweighed the costs. Fifty-eight per cent agreed with this statement in 2022, compared with 56 per cent in 2020.

But Ms Hill said Help debt was adding to a general sense of financial helplessness as Australians struggled with rampant inflation and a housing affordability crisis. She said that while the average balances were still “far, far lower than those of the US or the UK”, graduate debt had entered the Australian consciousness in a way not experienced before.

Futurity’s report has emerged a day after an analysis by former senior public servant Mark Warburton reached broadly similar conclusions.

Mr Warburton found that today’s students were graduating with average debts of between A$50,000 and A$60,000, which would typically take 12 years to repay – substantially more than the Australian Taxation Office’s estimate of nine-and-a-half years, an average based on all student debtors who have extinguished their student loans since the advent of what was originally known as the Higher Education Contribution Scheme (Hecs).

“Students who are currently completing their study…will spend a significant part of their working lives repaying these debts, a situation that was not the case when Hecs was introduced in 1989,” Mr Warburton noted.

He also found that the scheme’s settings disproportionately impacted women, partly because the entry-level credentials for female-dominated professions such as nursing and teaching had evolved in recent decades from less costly sub-bachelor’s qualifications to more expensive degrees.

Mr Warburton’s analysis found that within the two occupations making easily the largest total Help repayments – registered nurses and primary school teachers – women were paying off about six times as much student debt as men.

Women’s tendency to favour lower-paid professions and part-time work meant they spent longer than men, on average, in paying off their Help debt. This had put them at a particular disadvantage when repayment thresholds were lowered in 2019, while the annual indexation of Help debt in line with inflation – which is likely to increase the balances of unpaid debt by about 7 per cent on 1 June – also disproportionately affects women.

The Futurity survey found that university-educated women had more Help debt and commanded lower salaries than their male contemporaries. Almost 60 per cent more women than men had Help debt balances exceeding A$20,000.

Meanwhile, male respondents were two-thirds more likely than their female counterparts to be on salaries of over A$100,000, and almost one-third less likely to be earning under A$40,000.

john.ross@timeshighereducation.com