WEBVTT - The change to student loans, explained

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<v Speaker 1>Already and this is the Daily This is the Daily OS. Oh,

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<v Speaker 1>now it makes sense. Good morning and welcome to the

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<v Speaker 1>Daily OS. It's Sunday, the sixteenth or February.

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<v Speaker 2>I'm Billy, I'm Sarah.

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<v Speaker 1>It's not normal that we're always here on a Sunday.

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<v Speaker 2>I know what a pleasure.

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<v Speaker 1>It's a pleasure and a privilege to be in your

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<v Speaker 1>ears on this Sunday. Now, last year the government legislated

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<v Speaker 1>a change to help and other student loans, and that

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<v Speaker 1>change is now coming into effect. So with that in mind,

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<v Speaker 1>we thought it was the perfect time for a classic

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<v Speaker 1>TDA explainer breaking down everything you need to know about

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<v Speaker 1>your student loan and more importantly, how this change will

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<v Speaker 1>affect you. So Zara recently on our Instagram stories on

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<v Speaker 1>the Daily OS, we asked what the audience wanted to

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<v Speaker 1>know about the recent change true student loans, and we

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<v Speaker 1>were inundated with questions. So today, on this Sunday, we

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<v Speaker 1>are giving you all of the answers.

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<v Speaker 2>What better day of the week a Sunday to talk

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<v Speaker 2>about this?

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<v Speaker 1>And just a quick note before we start that this

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<v Speaker 1>podcast is produced with financial support from the Australian Government,

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<v Speaker 1>but as always, this content has been produced by us

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<v Speaker 1>using our normal editorial processes.

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<v Speaker 2>With that out of the way, Billy, let's get straight

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<v Speaker 2>into student loans. So let's just set it up. I

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<v Speaker 2>guess when someone begins a university course, they can either

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<v Speaker 2>pay up front or they can access a loan from

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<v Speaker 2>the government. So since most degrees are tens of thousands

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<v Speaker 2>of dollars, then you get into double degree territory, and

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<v Speaker 2>you know you're looking a lot here. Most people do

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<v Speaker 2>tend to opt for a student loan. Now, I've always

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<v Speaker 2>known student loans to be referred to as heck. But

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<v Speaker 2>you did just open this podcast by talking about help,

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<v Speaker 2>which was a tad confusing to me. Which one is

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<v Speaker 2>right or what's the difference? I guess if they are different.

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<v Speaker 1>Okay, so both are right, and it just depends what

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<v Speaker 1>you're talking about. Think of help as kind of an

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<v Speaker 1>umbrella term that covers all government higher education loans, and

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<v Speaker 1>then HEX is just one of those loans that you

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<v Speaker 1>can get under the umbrella of help, And HEX is

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<v Speaker 1>the loan that most undergrad students at universities do use.

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<v Speaker 1>But for simplicity's sake, we'll be referring to it as help.

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<v Speaker 1>So we're going to be covering all student loans.

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<v Speaker 2>Okay, that makes sense to me. So help umbrella. He's

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<v Speaker 2>a specific form of that.

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<v Speaker 1>Help, which is the one that most of us would

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<v Speaker 1>have used.

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<v Speaker 2>Yeah, okay, cool. And just before we go any further,

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<v Speaker 2>I do want to ask you a question, because I

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<v Speaker 2>know it's on everyone, every young person's mind. It's what

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<v Speaker 2>their parents always tell them. Is it true that university

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<v Speaker 2>was once free?

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<v Speaker 1>It was so for our parents' generation, Like you said,

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<v Speaker 1>university was free. So that was from nineteen seventy four

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<v Speaker 1>to nineteen eighty nine.

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<v Speaker 2>That's actually shorter than I thought it was.

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<v Speaker 1>Yeah, how long is that you're going to make me

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<v Speaker 1>do maths? Like fifteen years? Yeah, fifteen years.

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<v Speaker 2>I kind of thought it was like a generational Yeah.

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<v Speaker 1>No, just fifteen years that students didn't need to pay

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<v Speaker 1>for their degrees. But then this system of student loans

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<v Speaker 1>was rolled out in nineteen eighty nine. And notably, there

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<v Speaker 1>are actually a lot more people going to university now

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<v Speaker 1>than there was when going to UNI was free. So,

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<v Speaker 1>in nineteen eighty nine, only eight percent of the working

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<v Speaker 1>age population had a university degree, and now it's thirty

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<v Speaker 1>two percent. Interesting, so there has been quite a considerable

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<v Speaker 1>increase there. And now obviously going to UNI now isn't free,

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<v Speaker 1>but the government shocked to all. But the government does

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<v Speaker 1>help by subsidizing some of the cost and then letting

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<v Speaker 1>you take out a help loan for the rest. And

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<v Speaker 1>now another thing to note is that you only need

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<v Speaker 1>to start repaying that loan once your income reaches a

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<v Speaker 1>certain point, and how much you repay each year is

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<v Speaker 1>dependent on your income.

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<v Speaker 2>And that point about repayments being dependent on your income

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<v Speaker 2>is a really important one that I don't know that

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<v Speaker 2>you know I necessarily told enough about.

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<v Speaker 1>No, there's no university course where you get taught about

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<v Speaker 1>this adulting. So at the moment, the minimum compulsory repayment threshold,

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<v Speaker 1>so that is the income that once you start earning

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<v Speaker 1>you have to start repaying your loan. That number is

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<v Speaker 1>fifty four, four hundred and thirty five. So if your

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<v Speaker 1>income is above that you're paying that means that you're

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<v Speaker 1>starting to repay. And then once you do start repaying it,

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<v Speaker 1>how much you repay, like I said before, is dependent

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<v Speaker 1>on how much you are earning. So, just to give

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<v Speaker 1>you an example, someone earning fifty five thousand dollars is

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<v Speaker 1>only paying back one percent of their income, whereas someone

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<v Speaker 1>earning you know, let's say one hundred and fifty thousand dollars,

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<v Speaker 1>is paying nine percent of their income towards their compulsory repayments. Also,

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<v Speaker 1>just another thing to note is that it gets withheld

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<v Speaker 1>from your pay automatically by your employer. So that's something

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<v Speaker 1>that you'll see in your pay slip each month or

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<v Speaker 1>however often you get paid, and that is on behalf

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<v Speaker 1>of the ATO. But people with a help loan must

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<v Speaker 1>tell their employer so that they know.

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<v Speaker 2>To do this. Yes, so, as an employer myself, on

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<v Speaker 2>everyone's pay slips, you can see that loan as a

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<v Speaker 2>line item there, I guess.

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<v Speaker 1>Okay.

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<v Speaker 2>I want to turn now to a topic that is

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<v Speaker 2>in the news very often. So let's just picture this.

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<v Speaker 2>If you are taking out a normal loan, you usually

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<v Speaker 2>pay interest on top of paying back the actual amount

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<v Speaker 2>that you started with. But when it comes to student loans,

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<v Speaker 2>there is no interest. Instead, there's something called indexation. And

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<v Speaker 2>again it's something we've spoken a lot about. Can you

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<v Speaker 2>just walk us through what actually is indexation?

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<v Speaker 1>Yeah, and this is where the recent change that we're

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<v Speaker 1>talking about today comes in. But first I'll explain what

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<v Speaker 1>indexation is. So it's the way that an individual student

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<v Speaker 1>loan debt is adjusted every year to reflect the changes

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<v Speaker 1>in the cost of living. So, as we know, the

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<v Speaker 1>value of money changes over time, and the indexation is

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<v Speaker 1>designed to reflect that change in the value of money.

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<v Speaker 1>Now to explain how indexation works, I'm going to explain

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<v Speaker 1>how it worked previously, and then I'm going to explain

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<v Speaker 1>how it works now since that change has come into effect.

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<v Speaker 1>So previously, the indexation rate was only based on the

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<v Speaker 1>consumer price index, which we know better as inflation, and

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<v Speaker 1>that's a term that we have heard a lot about

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<v Speaker 1>in recent years, obviously in the rising cost of living,

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<v Speaker 1>and just for simplicity, we're going to call it inflation

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<v Speaker 1>for the podcast. So Zara, you might remember that around

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<v Speaker 1>two twenty train three that financial year, inflation was particularly

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<v Speaker 1>high and that resulted in the indexation rate applied to

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<v Speaker 1>help debts also being.

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<v Speaker 2>High because they were tied at that point exactly.

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<v Speaker 1>So in twenty twenty three, the student loan indexation rate

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<v Speaker 1>was seven point one percent, that is a lot. That

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<v Speaker 1>was the highest indexation rate applied to student loans in

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<v Speaker 1>more than thirty years, and in twenty twenty four, it

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<v Speaker 1>was also high at four point seven percent. Now, as

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<v Speaker 1>you might remember, many weren't happy with that. The Daily

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<v Speaker 1>OOS audience had.

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<v Speaker 2>A lot to say common section, yeah, very loud, veryvoc and.

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<v Speaker 1>So long story shot, the government decided to change what

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<v Speaker 1>the indexation rate is based on.

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<v Speaker 2>Okay, So you're saying, previously it was tied to indexation.

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<v Speaker 2>But when inflation rose and that number became extremely high,

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<v Speaker 2>so we were talking about seven point one percent, there

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<v Speaker 2>was this push to change that rate and what it

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<v Speaker 2>was Pegg two, What has that change been?

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<v Speaker 1>Okay? So they decided that the indexation could be based

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<v Speaker 1>on another measure, that one being the wage price index,

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<v Speaker 1>which measures how much the average income changes over time.

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<v Speaker 1>So you might remember that the conversation at the time

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<v Speaker 1>was that inflation was rising at a rate that was

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<v Speaker 1>much higher than what the average wages was and so

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<v Speaker 1>they took that feedback on board, I guess, and changed

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<v Speaker 1>it so that the rate of indexation could now be

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<v Speaker 1>based on what is lower of either the rate of

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<v Speaker 1>inflation or the rate of wage growth, and that will

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<v Speaker 1>mean that your student loan is never growing faster than

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<v Speaker 1>the average wage.

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<v Speaker 2>Okay. So previously the rate of indexation was based on

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<v Speaker 2>CPI on inflation. This change means that it will either

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<v Speaker 2>be the rate of inflation or the rate of wage growth,

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<v Speaker 2>whichever is lower exactly, Okay, And so when does this

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<v Speaker 2>change come into effect.

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<v Speaker 1>Well, they've actually backdated it, so it applies retrospectively from

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<v Speaker 1>during twenty twenty three. So remember I said that in

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<v Speaker 1>twenty twenty three the rate of indexation was at its

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<v Speaker 1>highest level in more than thirty years, and seven point

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<v Speaker 1>one percent that will retrospectively be changed to the rate

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<v Speaker 1>of wage growth at the time, which at that time

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<v Speaker 1>was lower than the rate of inflation at three point two.

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<v Speaker 2>Percent, considerably lower.

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<v Speaker 1>Yes, yeah, And the indexation rate for twenty twenty four

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<v Speaker 1>will also be reduced from four point seven percent to

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<v Speaker 1>four percent for the exact same reason.

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<v Speaker 2>And for anyone who's listening to this and thinking about

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<v Speaker 2>their debt, how do they find out how much relief

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<v Speaker 2>this change might have brought them.

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<v Speaker 1>So, if you had a help debt that was indexed

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<v Speaker 1>on the first of June train twenty three or the

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<v Speaker 1>first of June twenty twenty four, you've likely already received

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<v Speaker 1>an indexation credit on your student loan debt and it's

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<v Speaker 1>automatically applied, so you don't need to do anything to

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<v Speaker 1>apply for this relief, and if you're wanting to check

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<v Speaker 1>your loan, you can do that through your ATO online

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<v Speaker 1>account using my gov.

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<v Speaker 2>I just want to finish on talking about the timing

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<v Speaker 2>of indexation. I think you have tried to explain this

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<v Speaker 2>to me on about ten separate occasions. Going to admit,

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<v Speaker 2>it's still really confusing for me. So a lot of

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<v Speaker 2>people I think are in my camp and are time

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<v Speaker 2>of bit confused. Talk me through the timing of indexation.

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<v Speaker 1>This is confusing, but try to stay with me and

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<v Speaker 1>you can tell me at the end to But all

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<v Speaker 1>right if it makes sense. So, like like I said,

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<v Speaker 1>if you have a help debt and you're earning over

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<v Speaker 1>that minimum threshold that we discussed before, then you will

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<v Speaker 1>usually have repayments being automatically withheld each pay cycle. However,

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<v Speaker 1>the money being withheld from your pay each cycle doesn't

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<v Speaker 1>pay off your loan straight away, so it's not immediately

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<v Speaker 1>being deducted from your loan. It's basically put aside until

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<v Speaker 1>after the end of the financial year, so it's not

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<v Speaker 1>taken off the total loan amount until you have completed

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<v Speaker 1>your tax return for that financial year when your total

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<v Speaker 1>repayment income for the year is known, so then your

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<v Speaker 1>compulsory repayment can be calculated because, like we said, they

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<v Speaker 1>don't know how much of your HEX debt you need

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<v Speaker 1>to repay until they know what your total income for

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<v Speaker 1>that year is, and so that means that your repayments

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<v Speaker 1>aren't deducted from your loan until after the indexation is applyed.

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<v Speaker 2>Okay, I think I understand.

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<v Speaker 1>I look forward to in a month's time you telling

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<v Speaker 1>me exactly.

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<v Speaker 2>The same question. Well, Billy, thank you for joining me

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<v Speaker 2>on this lovely Sunday morning to talk through help and

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<v Speaker 2>HEX and everything else we need to know. Very helpful

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<v Speaker 2>for all of those unique students listening to properly understand

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<v Speaker 2>how this works, how the system works, and what this

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<v Speaker 2>change might mean for them. We'll be back again tomorrow

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<v Speaker 2>morning with a deep dive, but until then, have a

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<v Speaker 2>wonderful weekend.

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<v Speaker 1>This podcast was produced with financial support from the Australian Government.

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<v Speaker 1>My name is Lily Maddon and I'm a proud Arunda

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<v Speaker 1>Bune Lung Chalcotin woman from Gadigl Country. The Daily oz

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<v Speaker 1>acknowledges that this podcast is recorded on the lands of

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<v Speaker 1>the Gadighl people and pays respect to all Aboriginal and

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<v Speaker 1>Torres Straight Island and nations. We pay our respects to

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<v Speaker 1>the first peoples of these countries, both past and present.