With many young Australians about to start their university journey in the coming weeks, families across Australia are turning their attention to what the year ahead will financially look like.
According to recent ABS data, nearly 70 per cent of Australians aged 20 to 64 years had attained at least one non-school qualification (such as a university degree). In fact, many roles in today’s competitive job market look favourably upon, and in some cases require, an undergraduate and sometimes even a postgraduate qualification.
But university education, like all education, isn’t cheap. In fact, the latest ABS Household Expenditure Survey noted that the most significant increase in household spending was in education, which has jumped by 44 per cent in six years.
It’s clear that the cost of education is as significant for families as the big-ticket cost-of-living considerations such as housing affordability, healthcare, insurance, childcare, and aged care.
With the cost of an average bachelor degree starting at $15,000, and a postgraduate masters degree costing up to $37,000, it’s also safe to say young Australians are carrying bigger debts than ever before.
Now more than ever, it’s essential that families include education on the list of life stage expenses, and plan not just for primary and secondary school, but also university.
But isn’t that what HELP Loans are for?
It’s true that the government’s HELP scheme is intended to assist students with funding their university studies. While this is provided through a no-interest loan, a HELP loan, however, is subject to annual indexation after the debt is more than 11 months old, and it is still a debt that needs to be repaid.
Students start paying off their HELP debt once their income is above the compulsory repayment threshold. It’s a system based on the simple principle — the more you earn, the more you pay back. The mandatory repayment threshold for the 2018-2019 income year was $51,957, with the 2019-2020 income year dropping to $45,881.
When it comes to managing a HELP debt, there isn’t really a right or wrong answer about paying it back sooner or later. In reality, repaying a HELP debt means that there is less in the pay packet to spend and save on other things. Reducing the HELP debt can be a sensible way for young Australians to get into the habit of saving and better prepare themselves for the expenses that will hit them later in life, such as mortgages, healthcare, childcare and retirement.
What about the Bank of Mum and Dad?
The Australian Financial Review’s Jennifer Hewett wrote recently that the Bank of Mum and Dad now ranks as the fifth largest lender on mortgages in Australia, just behind the big four banks. Parents now account for more than $20 billion in property loans.
While this generosity goes a long way to getting first homeowners into the property market, it’s always worth thinking about the best way to get value out of a generous cash gift like this. Up-front contributions towards university fees or even helping with additional HELP repayments are also value-adding contributions that should be considered.
Preparation is key
Australians take a strategic approach to their investment strategy as it relates to superannuation, property, shares and other major asset classes — yet there’s a growing gap between rising education costs and families’ ability to fund it.
We recommend starting early, saving often, and having an investment that offers growth potential and tax benefits to help with some of the heavy lifting. It’s never too late to start planning and saving for education.