Student Loans Significantly Reduce Borrowing Power for Mortgages

HECS debt could reduce borrowing power for a mortgage, according to new research from Compare the Market.
The research found that a university student on an annual salary of $125,000 (US$80,800) with a student debt of $26,500 had a reduced borrowing capacity of $95,900.
Graduates paying off their HECS on an $100,000 (US$65,000) salary would be $56,300 worse off applying for a loan. Meanwhile, the borrowing capacity of those on an $75,000 income would be reduced by $26,500.
Economic director of Compare the Market, David Koch said not paying off student debt could have longer-term consequences.
“When the average time to repay a student debt has blown out from 8.2 years in 2011/12 to 9.5 years in 2021/22, most people will continue to pay hundreds or thousands of dollars more due to indexation,” he said.
In general, borrowing power is reduced by the percentage of income you must pay towards your HECS, Koch said.
HECS loans have had a harmless appearance because they do not accrue additional interest on top of indexation—where the loan is adjusted in accordance to inflation—and are written off when you die.
However, Koch said attitudes towards HECS have started to change because of the huge sums added to the debt each year through indexation.
Yet, the recent election promises of the Labor and Green parties demonstrate that HECS debt is still a notable concern of the Australian public.
This would correspond to an $5,520 cut for someone with an average student debt of $27,600.
The Greens aim to take it further, proposing a $74 billion plan to eliminate all student debt.
Additionally, the Council’s chief executive, Troy Williams, said VET students at independent providers were missing out.
Williams said the initiative will provide debt relief focused more on students in high-debt fields such as law, dentistry, and medicine. He said it fails to address the core issues facing future students studying with many independent skills training and higher education providers.
“For most current and future students with independent tertiary education providers, their debts will continue to be higher than they need to be as the 20 percent student loan tax remains in place,” he said.