Already and this is the Daily This is the Daily OS. Oh, now it makes sense. Good morning and welcome to the Daily OS. It's Sunday, the sixteenth or February.
I'm Billy, I'm Sarah.
It's not normal that we're always here on a Sunday.
I know what a pleasure.
It's a pleasure and a privilege to be in your ears on this Sunday. Now, last year the government legislated a change to help and other student loans, and that change is now coming into effect. So with that in mind, we thought it was the perfect time for a classic TDA explainer breaking down everything you need to know about your student loan and more importantly, how this change will
affect you. So Zara recently on our Instagram stories on the Daily OS, we asked what the audience wanted to know about the recent change true student loans, and we were inundated with questions. So today, on this Sunday, we are giving you all of the answers.
What better day of the week a Sunday to talk about this?
And just a quick note before we start that this podcast is produced with financial support from the Australian Government, but as always, this content has been produced by us using our normal editorial processes.
With that out of the way, Billy, let's get straight into student loans. So let's just set it up. I guess when someone begins a university course, they can either pay up front or they can access a loan from the government. So since most degrees are tens of thousands of dollars, then you get into double degree territory, and you know you're looking a lot here. Most people do tend to opt for a student loan. Now, I've always
known student loans to be referred to as heck. But you did just open this podcast by talking about help, which was a tad confusing to me. Which one is right or what's the difference? I guess if they are different.
Okay, so both are right, and it just depends what you're talking about. Think of help as kind of an umbrella term that covers all government higher education loans, and then HEX is just one of those loans that you can get under the umbrella of help, And HEX is the loan that most undergrad students at universities do use. But for simplicity's sake, we'll be referring to it as help. So we're going to be covering all student loans.
Okay, that makes sense to me. So help umbrella. He's a specific form of that.
Help, which is the one that most of us would have used.
Yeah, okay, cool. And just before we go any further, I do want to ask you a question, because I know it's on everyone, every young person's mind. It's what their parents always tell them. Is it true that university was once free?
It was so for our parents' generation, Like you said, university was free. So that was from nineteen seventy four to nineteen eighty nine.
That's actually shorter than I thought it was.
Yeah, how long is that you're going to make me do maths? Like fifteen years? Yeah, fifteen years.
I kind of thought it was like a generational Yeah.
No, just fifteen years that students didn't need to pay for their degrees. But then this system of student loans was rolled out in nineteen eighty nine. And notably, there are actually a lot more people going to university now than there was when going to UNI was free. So, in nineteen eighty nine, only eight percent of the working age population had a university degree, and now it's thirty two percent. Interesting, so there has been quite a considerable
increase there. And now obviously going to UNI now isn't free, but the government shocked to all. But the government does help by subsidizing some of the cost and then letting you take out a help loan for the rest. And now another thing to note is that you only need to start repaying that loan once your income reaches a certain point, and how much you repay each year is dependent on your income.
And that point about repayments being dependent on your income is a really important one that I don't know that you know I necessarily told enough about.
No, there's no university course where you get taught about this adulting. So at the moment, the minimum compulsory repayment threshold, so that is the income that once you start earning you have to start repaying your loan. That number is fifty four, four hundred and thirty five. So if your income is above that you're paying that means that you're starting to repay. And then once you do start repaying it, how much you repay, like I said before, is dependent
on how much you are earning. So, just to give you an example, someone earning fifty five thousand dollars is only paying back one percent of their income, whereas someone earning you know, let's say one hundred and fifty thousand dollars, is paying nine percent of their income towards their compulsory repayments. Also, just another thing to note is that it gets withheld
from your pay automatically by your employer. So that's something that you'll see in your pay slip each month or however often you get paid, and that is on behalf of the ATO. But people with a help loan must tell their employer so that they know.
To do this. Yes, so, as an employer myself, on everyone's pay slips, you can see that loan as a line item there, I guess.
Okay.
I want to turn now to a topic that is in the news very often. So let's just picture this. If you are taking out a normal loan, you usually pay interest on top of paying back the actual amount that you started with. But when it comes to student loans, there is no interest. Instead, there's something called indexation. And again it's something we've spoken a lot about. Can you just walk us through what actually is indexation?
Yeah, and this is where the recent change that we're talking about today comes in. But first I'll explain what indexation is. So it's the way that an individual student loan debt is adjusted every year to reflect the changes in the cost of living. So, as we know, the value of money changes over time, and the indexation is designed to reflect that change in the value of money.
Now to explain how indexation works, I'm going to explain how it worked previously, and then I'm going to explain how it works now since that change has come into effect. So previously, the indexation rate was only based on the consumer price index, which we know better as inflation, and that's a term that we have heard a lot about in recent years, obviously in the rising cost of living, and just for simplicity, we're going to call it inflation
for the podcast. So Zara, you might remember that around two twenty train three that financial year, inflation was particularly high and that resulted in the indexation rate applied to help debts also being.
High because they were tied at that point exactly.
So in twenty twenty three, the student loan indexation rate was seven point one percent, that is a lot. That was the highest indexation rate applied to student loans in more than thirty years, and in twenty twenty four, it was also high at four point seven percent. Now, as you might remember, many weren't happy with that. The Daily OOS audience had.
A lot to say common section, yeah, very loud, veryvoc and.
So long story shot, the government decided to change what the indexation rate is based on.
Okay, So you're saying, previously it was tied to indexation. But when inflation rose and that number became extremely high, so we were talking about seven point one percent, there was this push to change that rate and what it was Pegg two, What has that change been?
Okay? So they decided that the indexation could be based on another measure, that one being the wage price index, which measures how much the average income changes over time.
So you might remember that the conversation at the time was that inflation was rising at a rate that was much higher than what the average wages was and so they took that feedback on board, I guess, and changed it so that the rate of indexation could now be based on what is lower of either the rate of inflation or the rate of wage growth, and that will mean that your student loan is never growing faster than the average wage.
Okay. So previously the rate of indexation was based on CPI on inflation. This change means that it will either be the rate of inflation or the rate of wage growth, whichever is lower exactly, Okay, And so when does this change come into effect.
Well, they've actually backdated it, so it applies retrospectively from during twenty twenty three. So remember I said that in twenty twenty three the rate of indexation was at its highest level in more than thirty years, and seven point one percent that will retrospectively be changed to the rate of wage growth at the time, which at that time was lower than the rate of inflation at three point two.
Percent, considerably lower.
Yes, yeah, And the indexation rate for twenty twenty four will also be reduced from four point seven percent to four percent for the exact same reason.
And for anyone who's listening to this and thinking about their debt, how do they find out how much relief this change might have brought them.
So, if you had a help debt that was indexed on the first of June train twenty three or the first of June twenty twenty four, you've likely already received an indexation credit on your student loan debt and it's automatically applied, so you don't need to do anything to apply for this relief, and if you're wanting to check your loan, you can do that through your ATO online account using my gov.
I just want to finish on talking about the timing of indexation. I think you have tried to explain this to me on about ten separate occasions. Going to admit, it's still really confusing for me. So a lot of people I think are in my camp and are time of bit confused. Talk me through the timing of indexation.
This is confusing, but try to stay with me and you can tell me at the end to But all right if it makes sense. So, like like I said, if you have a help debt and you're earning over that minimum threshold that we discussed before, then you will usually have repayments being automatically withheld each pay cycle. However, the money being withheld from your pay each cycle doesn't pay off your loan straight away, so it's not immediately
being deducted from your loan. It's basically put aside until after the end of the financial year, so it's not taken off the total loan amount until you have completed your tax return for that financial year when your total repayment income for the year is known, so then your compulsory repayment can be calculated because, like we said, they don't know how much of your HEX debt you need to repay until they know what your total income for that year is, and so that means that your repayments
aren't deducted from your loan until after the indexation is applyed.
Okay, I think I understand.
I look forward to in a month's time you telling me exactly.
The same question. Well, Billy, thank you for joining me on this lovely Sunday morning to talk through help and HEX and everything else we need to know. Very helpful for all of those unique students listening to properly understand how this works, how the system works, and what this change might mean for them. We'll be back again tomorrow morning with a deep dive, but until then, have a wonderful weekend.
This podcast was produced with financial support from the Australian Government. My name is Lily Maddon and I'm a proud Arunda Bune Lung Chalcotin woman from Gadigl Country. The Daily oz acknowledges that this podcast is recorded on the lands of the Gadighl people and pays respect to all Aboriginal and Torres Straight Island and nations. We pay our respects to the first peoples of these countries, both past and present.