More Australians repaying student loans early

Early repayment of Australian student loans has soared, as graduates shell out prematurely to avoid indexation of their increasingly costly tuition debts.

Newly released Higher Education Loan Programme (Help) data shows that the accumulated tally of “voluntary” repayments reached more than A$10.8 billion (£5.5 billion) last financial year, up from A$5.2 billion in 2020-21, after appreciating more in the past two years than the previous 16 combined.

The figures reflect mounting concern over a sharp rise in student debt because of high annual indexation of graduates’ outstanding balances – a product of the elevated inflation rates of recent years – and a massive Covid-era hike in fees for humanities degrees.

The number of people making early repayments grew almost three times as much in 2023-24 as in 2022-23. Over the past two years, the ranks of debtors who make voluntary repayments have increased at roughly double the rate of those making compulsory repayments.

Australian National University policy analyst Andrew Norton said this was surprising, because strong graduate employment in recent years should have fuelled a steeper rise in the number of people making mandatory Help repayments through their tax. Repayment becomes compulsory once debtors’ earnings reach A$54,435.

Professor Norton said many borrowers appeared to have cleared their balances before the latest application of indexation to their debts on 1 June.

Such strategies reflect growing consciousness about Help administrative details among debt-wary graduates. Early repayment has become more popular than it was under the bonus schemes of recent decades, whereby premature contributions of at least A$500 reduced outstanding balances by up to 15 per cent more than the amount repaid.

These bonuses were whittled down to 5 per cent in 2012 and abolished entirely in 2017 because policymakers concluded that such schemes made little difference to repayment behaviour.

Indifference to loan scheme arrangements now appears a thing of the past, after some graduates found that their compulsory repayments had not even kept pace with indexation, while others were denied home loans because of their Help debts.

Indexation added more than A$3.3 billion to student debts last financial year and A$4.8 billion in 2022-23, the statistics show.

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A bill introduced into parliament in August could change this, with the government planning to use the wage price index rather than the consumer price index to calculate the past two years’ indexation. This will reduce the indexation bill by 3.9 percentage points in 2023 and 0.7 percentage points in 2024, with the savings credited to graduates’ loans or added to their tax returns.

“The big hike in student debt last year hit a lot of Australians hard,” education minister Jason Clare told parliament. “This bill will wipe around A$3 billion in student debt for 3 million Australians.”

Western Sydney University endorsed the bill but said the government should “take immediate action” on the “unfair and escalating” humanities fees.

“Arts degrees are a critical university entry point for many students,” said vice-chancellor George Williams. “[Those] who can no longer afford an arts degree do not undertake alternative degrees. The cost of arts degrees do not reflect future earning power and ignore the important contribution that these graduates make to our economy and society.”

The statistics show that almost 57,000 graduates now have Help debts exceeding A$100,000, up from about 27,000 when fees changed in 2021.

john.ross@timeshighereducation.com