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Increased HECS debt to affect home loan borrowing capacity


Thursday’s announcement that HECS-HELP debt will rise by 7.1 percent has pushed homeownership even further out of reach for Australian graduates.

James Milburn, a recent college graduate, has been more careful about managing his finances than the average 25-year-old, but says his dreams of owning a home are still shattered.

Self-described as “very frugal”, the health insurance company has worked diligently to save enough money for a down payment on a modest studio apartment in southern Melbourne.

The one-bedroom South Yarra home, which is listed for $180,000, would become Mr Milburn’s “foot in the door”.

“I wasn’t looking for anything extravagant,” he said.

“I thought it would definitely be in my price range. I had $20,000 in savings, which is more than enough for a 10 percent down payment.

The young Melburnian, who recently graduated from RMIT with a Bachelors in Communications, approached a broker to discuss his loan options.

While earning a relatively standard $50,000 graduation salary, he had already paid off about $10,000 of his $25,000 HECS debt.

“Basically, the broker told me that because of my student loan debt, which is only $15,000, I could only borrow $125-130,000,” he said.

“I thought I was looking at a really cheap property…what am I supposed to do if I can’t even afford something this cheap?”

Analysis from Compare Club, a personal finance company, has revealed that HECS-HELP debt saves an average of $15,000 on a college graduate’s borrowing power.

From July 2022, HECS-HELP will be mandatory when assessing home loan applications, which, on top of 11 rate hikes, has made it even more difficult than ever to enter the housing market.

Compare Club chief executive Lance Goodman said the number of loan options for the average college graduate will drop from 15 lenders to one once HECS debt becomes a factor.

“In this scenario, it meant our average college graduate could only get a 5.89 percent loan, but without HECS they could have shaved 0.45 percent off this rate and gotten a 5.44 percent loan,” he said.

“So HECS now not only limits borrowing power, it also limits your options and increases your repayments.”

Mr Goodman said these factors combined resulted in a “triple whammy of constraints” faced by graduates looking to get a mortgage.

Instead of saving for his first property, Mr. Milburn is now putting aside his pennies to pay off his student loans, while his dreams of owning a home have been shattered for several years.

“I’m lucky to only have $15,000 in debt, but for a lot of people, especially those who have a master’s degree, it’s much worse,” he said.

With his current HECS debt, Mr. Milburn is able to pay off a $140,000 loan, but without it he could have paid off a $165,000 loan.

According to the National Tertiary Education Union, the average student now has $24,770 in debt, compared to $15,191 in 2012, and it takes an average of nearly a decade to pay it off.

Business management degrees can take 44 years to pay back at a cost of $119,331, while a Humanities and Social Sciences Honors degree can take 40 years at $110,353.

Like other young people, Mr Milburn said his rising debts pushed him further away from entering the housing market.

“Before you even get your foot in the door, you’re behind,” he said.

“It feels like my life is suddenly on hold; How am I supposed to catch up even if I get a well paying job?

“Everything just feels like it’s piling up.”

Mr Milburn has urged prospective tertiary students to think carefully about the debt associated with each degree, as he and his colleagues gave little thought to this before starting their studies.

“I think people hear about HECS debt in high school, then they go to college and it’s so easy to let everything go to HECS,” he said.

“You don’t really think about it when you first get into a degree; you’re thinking about the friends you’re going to make or the career you’re going to have — not the debts you’re going to rack up.”

Joanna Swanson

Joanna Swanson is Europe correspondent at the Thomson Reuters Foundation based in Brussels covering politics, culture, business, climate change, society, economies and inclusive tech. With specific focus in breaking news, she has covered some of the world's most significant stories.