What is interest by any other name... try indexing and it is hitting student debts hard this year.
Brett was asked to give an overview on how Hecs, help and other study debts are impacted by the current inflation rates - and also what this can mean for lending.
Study debt is interest free in Australia, instead it is indexed with CPI and in current conditions this means your HECS bill could be rising faster than you can repay it. Hecs impacts your borrowing capacity in two ways:
the repayment itself is a factor in terms of your affordability to make home loan repayments
and the balance of your debt is considered in "Debt to Income" (DTI) ratios which are being controlled by clients.
Interest or no interest?
Credit adviser Brett Sutton said indexing allowed governments to recoup study loans at the same value as when it was given, in line with current inflation.
"So while there is no interest, it does accrue and does go up over time," he said.
Mr Sutton warned that a debt could impact a person's borrowing capacity, especially when it comes to mortgages
So what should you do - Hecs was always considered the good debt to have as it was zero interest and with low inflation you were able to keep on top of it with the mandatory repayments. In current environment it might make more sense to pay your HECS down faster, and particularly so if you want to take out any new finance.
