While HELP debts don’t come with interest attached to them, they do rise (or are indexed) with inflation, based on the consumer price index (CPI), which the Australian Bureau of Statistics (ABS) updates each quarter.

These changes are set to impact a number of young Australians, including law students and younger lawyers who, despite paying a percentage of their debt off each year, will see their debt increase with indexation and inflation.

Amplify’s principal and financial adviser, Tanya Carlson, who has emphasised the importance of legal-specific financial planning in the past, told Lawyers Weekly that these increases could have a negative impact “in some circles”, particularly for those with more expensive degrees.

“The indexation of HECS (now known as HELP) debt is not well understood and has definitely caused concern this year. Inflation has come in high and so a 7 per cent increase in your debt level can’t be ignored. I think this will impact law students who are more conscious of their HELP debt levels but mostly this will be felt by the junior lawyers who are required to pay a certain percentage as their earnings increase and so therefore, they may repay an amount but still have a higher HELP debt next financial year due to this indexation,” she explained.

“All students have to consider the costs of education nowadays, and law is known to be a more expensive degree to obtain. Inflation may be starting to fall, but there is a strong possibility for it to remain higher for longer, so the indexation of HELP debt may continue at a higher level in future years, this has to be considered.”

As reported by the AFR, law graduates’ fees will increase from $16,323 to $17,483 per year, and their overall debt will accumulate faster than ever before, meaning that it will now take a longer amount of time to pay off a HELP debt.

The increase is particularly relevant for those on graduate salaries and law graduates, and SkilledSmart’s founder, Paridhi Jain, said incoming university students may be more likely to defer or choose a different career path altogether.

VIEW ALL

“The increase in HECS debt will certainly feel like a pinch for a lot of university students. The current inflationary environment in general is tough as it is — whether you look at petrol prices, rent, and now university fees, the cost of living has increased steeply over the last year or so. This tends to hurt low-income earners the most, and most university students don’t have the capacity to work a full-time job alongside their studies,” she explained.

“So, we are going to continue to see young people having to consider financial limitations in ways that they may not have previously — whether that’s staying at home with parents for longer, picking up extra work to make ends meet, or even picking career paths and graduate jobs that compensate well over jobs that might be more aligned with personal interests but don’t pay as highly.

“Previously, students felt more able to prioritise other financial goals like investing or buying a property, which may change now with the increase. With increasing costs, we may also start to see people deferring university so that they can focus on earning and saving up for the expense of going to university instead of enrolling straight out of high school.”

However, one thing that has stood out to Ms Jain recently is that, especially with the cost of living rising, a rental crisis and now the biggest HELP indexation rise in decades, it’s becoming “imperative that people take an active interest in managing their personal finances from a younger age”.

“Previously, I’d typically see that most people wouldn’t start thinking too much about their personal finances until their mid- to late-20s, once they’d graduated university and started earning a full-time salary, and maybe spent a few years enjoying their new level of income. Now, given the current economic climate, I think it’s vital that people start taking an interest at an earlier age, even right out of high school, so they can really maximise the value of whatever they’re earning from the get-go. This is particularly true for people who, like many law students, might be doing longer university degrees, and may not have the opportunity to earn a full-time salary for several years,” she added.  

“The mistake people often make in university is thinking that their part-time or casual earnings are not substantial enough to spend much effort trying to optimise, but you would be surprised at how quickly you can start seeing progress with your savings and investments on even a smaller income. I think students would be doing themselves a real disservice to ‘wait until they had a real job’ to start taking their finances seriously.”

In line with this, students who can pay off a lump sum of their debt should do so, according to Ms Carlson, who added that professional advice may also help moving forward.

“If you can pay a lump sum off your HELP debt before the increase on 1 June, then do so, as the indexation will then apply on the lower debt level. (It’s very simple to make a payment on MyGov). However, once you pay this lump sum, you can no longer access the funds so if you need to have a cash buffer, this may best be retained in your savings/offset account to provide access to liquidity,” she said.   

“It’s also worth noting that your HELP debt can affect your ability to borrow, so making a reduction payment may be helpful if you intend to apply for a loan in the near future. If you are not sure what to do, seek professional advice on your individual situation.”