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Posted: 2023-05-30 18:57:45

More than 3 million Australians will see their student debt rise in line with inflation tomorrow, adding more than $1,000 to the average loan and sparking warnings of a lifelong impact on borrowing capacity.

Indexation of 7.1 per cent — the highest in more than three decades — will be applied to more than $74 billion in outstanding HECS-HELP and vocational education loans.

For the past decade, indexation averaged 2 per cent per year.

Lending institutions consider HECS-HELP debt in the same way as other personal loans and credit cards when evaluating a client's ability to service a loan, and it features in debt-to-income ratio calculations.

Independent education-focused financial institution Futurity Investment Group has analysed HECS-HELP debt levels and outcomes, most recently through a survey of 1,000 current or past university students.

It has found the average time to repay a debt is nearing a decade.

Student debt reduces borrowing power

Group executive Kate Hill said rising student debt, coupled with the increasing cost of living, had made it increasingly difficult for university-educated Australians to become homeowners and realise other goals.

"Buying a first car, buying a home, starting a business — those sort of financial decisions that more often than not require borrowing for young people — just won't be available because of the level of debt they will have sitting there because of their education," Ms Hill said.

"There are a whole lot of issues converging that mean, we believe, we'll see a very limited ability for many people to be able to access borrowing as and when they'd like."

Ms Hill said the high rate of indexation would have an ongoing impact on graduates' life decisions.

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