Soaring Student Loan Debts Reduce Home Buying Capacity by $140,000 in Australia

Soaring student loan debts in Australia are significantly impacting first-time homebuyers' ability to purchase property, reducing their lending capacity by up to $140,000. Policymakers are considering HECS relief measures to address this growing crisis.

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Geeta Pillai
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Soaring Student Loan Debts Reduce Home Buying Capacity by $140,000 in Australia

Soaring Student Loan Debts Reduce Home Buying Capacity by $140,000 in Australia

A recent analysis by RateCity reveals that skyrocketing student loan debts in Australia are significantly impacting the ability of first-time homebuyers to purchase their first property. The study shows that these debts can reduce first home buyer lending capacity by up to $140,000.

Over the past decade, HECS (Higher Education Contribution Scheme) loans have ballooned, with the average debt more than doubling from $26,494 to $64,000. Many graduates are struggling to pay off their debts due to high inflation, which has led to annual indexation of HECS loans, causing the debt to grow faster than it can be paid off. The number of people with HECS debts over $100,000 has grown exponentially, from 4,600 in 2011 to 29,000 in 2016.

Nearly 3 million Australians owe the government $78 billion in HECS debts, many of whom are juggling mortgages, rent, and other cost of living pressures. These debt spirals can be especially tough on women, who are more likely to have caring responsibilities and reduced working hours, delaying when they reach the mandatory repayment threshold.

Why this matters: The high HECS debts are reducing the purchasing power and home ownership prospects of many Australians, particularly recent graduates. This issue is gaining attention from policymakers, with the prime minister indicating potential HECS relief measures in the upcoming budget.

Independent MPs are pushing for reform of the student loans system ahead of the May budget. A major review of higher education has recommended a return to demand-driven funding, a $10 billion infrastructure fund, an independent tertiary education commission, and bonuses paid based on graduation.

RateCity's analysis highlights various home loan offers and programs available to first home buyers, including the Federal first home buyer Government Guarantee Scheme, the Clean Energy Home Loan, and options for those with short-term employment or on probation. The article encourages first-time homebuyers to seek expert advice to understand their borrowing capacity and find the most suitable home loan product for their needs.

In response to the growing student debt crisis, Education Minister Jason Clare stated, "The idea that 55% of young people will have a degree by 2035 is not just unrealistic, but fails to ask students what they want." While few Australians regret taking on higher education, 50% of those who borrowed to fund it say it has affected their life choices.

Key Takeaways

  • HECS debts reduce first-time homebuyers' borrowing capacity by up to $140,000.
  • Average HECS debt more than doubled from $26,494 to $64,000 in the past decade.
  • Nearly 3 million Australians owe $78 billion in HECS debts, impacting home ownership.
  • Policymakers consider HECS relief measures and higher education system reforms.
  • 50% of HECS borrowers say it has affected their life choices.