Historically, one of the groups that people like me pinpointed as big losers from high inflation were retirees on fixed incomes, such as pensions. But a forgotten group are ex-students straddled with big HECS debts. These debts are not only building faster than usual because of 7.8% inflation, they’re also stopping young borrowers from getting into the property market. This borders on a national crime for Australians who are virtually addicted to real estate from birth!

In an exclusive, the Daily Telegraph revealed how many ex-students with these quite large HECS debts are heading for a debt cliff of their own, as the extraordinary post-pandemic inflation rate pumps up what the debtors to Government have to repay.

But not only that, there is a knock-on effect because lenders look at all of a borrower’s debt when considering whether they want to lend to them for important goals such as buying a home, a business, a car or any other relatively expensive item.

Is this a big issue? Well, yes, with the Tele’s Elidih Sproul-Mellis pointing out: “There were 374,785 Australians in the 40-49 age bracket in 2022 still paying off their student loans, accounting for 12.5 per cent of the total number of debtors. Two thirds were women.”

The Guardian put the current inflation impost, with the following: “The Higher Education Loan Program – previously the Higher Education Contribution Scheme (HECS) - is tied to inflation, increasing proportionately in line with the consumer price index (CPI). Inflation is currently growing at 7.8% – the fastest pace since just before the 1990s recession.”

The average slug for a three-year degree is $20,000 but loans for other degrees show what some ex-students are up for. “HECS-HELP loans are available to eligible students who attend university or an approved higher education program to cover the course fees,” Canstar explains. “The HELP loan limit in 2023 is $113,028, or $162,336 if you study dentistry, medicine, veterinary science or eligible aviation courses.”

This shows the kind of debts lenders would look at when deciding to lend to someone carrying a HECS liability.

And here’s a great example from the Tele on the impost of HECS debt and inflation on an ex-student borrower.

“Jane is an entry level business analyst earning $99,000 a year in her first high-paying job out of uni. She studied a Bachelor of Business which left her with a $45,000 HECS debt. She repays $536 per month. Lender, UNO, estimates she could borrow at least $457,724 from most banks.  Without HECS, she could borrow $528,145, a difference of $70,421 (15.39%).

Ex-students can either pay the ATO directly via BPAY, credit card or direct credit, or they can make a salary packaging arrangement with their employer. And many of these ex-students cop ‘bill shock’ at tax time, if these amounts haven't been taken out throughout the year with their pay, so making voluntary repayments can help avoid these annual slugs. This explains why lenders have to look at the HECS slug and a borrower’s capacity to repay a loan.

The Tele says: “Graduates are already shying away from big financially costly life milestones following last year’s 3.9 per cent loan indexation. Nearly 60 per cent of graduates surveyed by Futurity Investment Group said their HECS debt had impacted their ability to buy a home, and one in three said it had affected their decision to start a family.”

But inflation this year is going to be around 7.8%. So, the number of these ex-students/would-be borrowers finding lenders saying no to them for a big loan is bound to increase. It also underlines how important it is for the RBA to get its inflation-killing rate rises right.

On one hand, the rate rises need to beat inflation down to reduce the future annual increased repayments on these HECS loans. On the other hand, for ex-students already with a mortgage, they are not only losing income in repayments to the bank because of rising interest rates, the Government is demanding more via the indexed to inflation repayments on the HECS debt.

And if these borrowers are now on fixed rate mortgages set to become very expensive variable rate loans, the bigger are their HECS repayments, it steepens the cliff they’re about to fall over.

Watching what the US central bank does with its interest rate rises overnight, faced with the current banking crisis, could influence our RBA, with some economists tipping a pause and even an ending to rate rises could be on the cards.

Ex-students with big home and HECS debt would love an end to rate rises with inflation on the slide.