A little bit late to the budget party, but I was linked an article by a friend today, and I was curious where the media are pulling it's numbers from.
My main topic addresses the following quotes from the article
From June 2016, the Federal Government wants to change the rate at which all higher education loans are indexed, meaning the effective interest rate would go from CPI to as high as 6 per cent.
and
HELP debts will be indexed by the Treasury 10 year bond rate (to a maximum of 6.0 per cent per annum) rather than the Consumer Price Index (CPI)
It says as high as 6%, which would imply that it is capped at 6% right?
Then I kept looking, at the 10 year government bond which HECS will be pegged to.
Shock horror when I found the bond yields at 3.65%, compared to the current CPI of 2.9%. Which means at the moment, there is only a 0.75% increase in HECS fees. Someone correct me if I'm wrong here.
Anyway, my HECS debt will be around $30k when I graduate.
I'm going to cut corners and make stupid assumptions like the 10 year government bond will always be 1% above CPI, and that I won't find a job which pays over average income for 5 years, and that I'll pay the HECS off all at once
Punching the numbers out,(30000 x 1.01^5) over the 5 years, I'll have to pay $1530 more than what I would've paid pre-budget. This comes down to $306/year.
Of course this isn't taking into account the stupid increase in Uni fees (which I agree is terrible and I'm hoping it won't pass the senate) and other factors, but I don't see the point of all this media puffery over the small HECS increase. Unless there's some point in this policy that I'm missing? I should probably point out I haven't read the actual budget :) This is just what I understand from the media
Yes yes, all the Labour die-hards will have a cow over this post. I should mention before I get negged into oblivion (on a forum post :D), I'm neither Liberal or Labor. I'm just trying to put things into perspective.
Tl;dr, Am I missing something from the new policy, and if not, why are people making such a big deal over a less-than-1% increase to HECS?
It is very unlikely you will pay the loan off in one go, and it is the compounding nature of paying the annual 4% or whatever the default is that is causing the drama.
You could liken it to a credit card that said there is a permanent interest free period providing you make the minimum repayment changing its terms after you have made the balance transfer to up the interest rate.
Many current students have debts over $30k, that they were reasonably expecting to pay off over 20 years or so. Changing the rules so it costs them quite a bit more for the same repayment schedule is a bit of a breach of trust.