University students will feel the pinch even more as the indexation rate applied to HECS–HELP loans has jumped from 1 June 2022 to 3.9 per cent (0.6% per cent in 2021), the highest rate in a decade.
With today’s degrees costing between A$23,000 and A$43,000, this is a significant impost for someone coming into the workforce starting on an average graduate wage, in most cases reported as in excess of $70,000.
The inevitable resulting financial stress makes it essential to learn how to budget, control spending and set goals with your money.
We’ll return to those themes. But it’s important to understand how the HECS-HELP scheme works and the real impacts it is having.
HECS-HELP debt has to be repaid through the taxation system once your repayment income is above the compulsory repayment threshold, even if you are still studying. The compulsory repayment threshold is adjusted each year.
For the 2021-22 income year, the compulsory repayment HECS-HELP threshold is $47,014.
Laura Irwin, a Sydney University student who is in her final year of a Bachelor of Arts majoring in International Relations and Philosophy is disappointed with the recent rate increases.
“It’s disappointing. I suppose it is inevitable – everything is going up – but considering three-quarters of my university education was conducted online, I feel cheated,” she said.
“I’m essentially paying for YouTube and a piece of paper, not the quintessential university experience the past generations received.”
“I have not started repaying my HECS debt which is currently around $22,000 with another year to go, I just can’t afford to. I work on a casual basis as a Fit Technician at The Athlete’s Foot and a payroll assistant at Pharmacy Phusion to make ends meet.”
“I also received the Youth Allowance during 2020-2021 while I was living out of home, but those payments barely covered the rent.”
“The HECS debt is around the cost of a small car, but the idea of needing to pay it off does worry me. I don’t know how I’ll be able to continue paying living costs and have some type of social life whilst paying off the debt.”
Laura feels she isn’t that badly off compared to some of her friends who are doing science-based degrees.
“Some of my friends are really feeling the weight.”
Studying a science degree costs around $50,000, and if you have the marks and desire to become a doctor, there is another $86,000 over 4 years.
According to the ATO, outstanding HELP debt currently stands at $66 billion of which the 3.9 per cent increase will be applied. Research by Finder in November 2021 found that 28 per cent of Australians – equivalent to over 5.4 million people – still have debt in student loans.
With the size of student loans growing and showing no sign of slowing, it’s easy to see where this is headed. Graduates seem certain to arrive in their careers burdened by financial stress, the single biggest cause of stress for Australians.
In the United States, the situation is even worse.
The latest student loan debt statistics for 2022 show that there are 45 million borrowers who collectively owe approximately $1.7 trillion in student loan debt. Student loan debt is now the second-highest consumer debt category — second only to mortgage debt and higher than debt for both credit cards and auto loans.
Living costs in Australia are escalating and the forecast is more of the same.
If you are a student doing full-time study living out of home, as Laura is, not only is your HECS debt 3.9 per cent larger with electricity prices increasing 18 per cent from 1 July 2022, and shopping at Coles or Woolworths rising 12 per cent throughout 2022, this is a lot to sustain for any student.
“There should be some HECS debt relief like a 2-year indexation pause, not large increases” Laura says.
There are actions students can undertake to help manage financial stress says Andrew Fleming, Founder and CEO of Financial Mindfulness.
So why budget?
Instinctively, we know that budgeting allows us to manage money wisely, avoid financial stress, and be in control.
The simple answer is that it’s a habit that is always helpful to our financial situation.
Here are some first-person perspectives on what budgeting did for people:
Andre, 28 of Bunbury, Western Australia admitted he had never known what he was really spending.
“I started seeing just how much I was really spending on my lifestyle, and it was a sobering experience,” he said.
“I also wanted to save for an overseas holiday but couldn’t make it happen as I didn’t have enough money.”
Melissa, 29, from Brisbane, said budgeting was finally enabling her to save.
“I now have made changes on how much I spend on eating out and catching Ubers,” she said.
“It was great to feel in control of where I spend my money now and how much I will have left,” added Phil, 46, from Sydney.
Lisbet, 40, Adelaide said budgeting allowed her to understand how much interest she was paying on her card.
“I now manage my spending to avoid paying credit card interest, and this has saved me a lot of money,” she said.
Controlling your spending sounds simple, but let’s be honest, without a budget; you are more likely to over/impulse spend.
You’re trying your best to make good choices, with a rough idea of how much you can spend.
But without actual financial boundaries, it’s easy – and extremely common – to spend more than we meant to.
It feels like a kind of freedom to splurge, and spend without worrying – buying a shiny new pair of shoes, that next level smartphone, taking a cab over a bus, even just getting an extra dish when ordering takeaways.
We don’t want to see these choices as actually creating our financial reality. But when you sit down and discover you have taken 10 cab trips in a month or bought takeaway dinners 14 times, the cost adds up, and the areas you can cut costs become apparent.
In other words, budgeting makes us aware of unconscious and unhelpful choices with money. It gives us control over these self-defeating behaviours.
Setting goals also sounds simple. It seems easy to set goals; it’s a creative exercise that seems responsible and feels good too. You settle on a goal and work out a timeline.
But achieving a goal is difficult – or everyone would be kicking financial goals all the time. And we are not doing that.
Budgeting is an essential part of achieving any personal financial goal. You’ll find it challenging to commit to any financial goals without budgeting.
A budget allows you to reverse engineer your goals via a clearly defined process. It keeps you on track, day in, day out, week in, week out, month by month. Each budgeting action is a recommitment to your goals.
Over time, the benefits of budgeting help you achieve financial goals and ensure there is money left over which helps reduce financial stress.