HECS Debt in Australia during Hyperinflation?

Discussion in 'Markets & Economies' started by Kiren, May 11, 2019.

  1. Kiren

    Kiren New Member

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    Hi,

    Does anyone know what happens to a student's HECS Debt in Australia if we end up having a financial crisis here in Australia and end up with hyperinflation like there has been in lot's of other countries around the world when they went through hyperinflation.

    For example, here is a list of countries that have experienced financial crisis in the last 20 years.

    21st century[edit]
    source:
    https://en.wikipedia.org/wiki/Financial_crisis
     
  2. leo25

    leo25 Well-Known Member Silver Stacker

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    HECS is indexed to inflation CPI. But i guess if there was hyperinflation you would pay it off outright quick, though i can't see hyperinflation happening in OZ.
     
  3. Kiren

    Kiren New Member

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    Wouldn't that make the HECS Debt more difficult to pay off, since the out of control inflation raises the level of HECS Debt to a much, much higher level?
     
  4. leo25

    leo25 Well-Known Member Silver Stacker

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    HECS interest/indexation is applied only once per year on the 1st of June. If there is high CPI inflation of say 15% and you couldn't afford to pay off your $50k worth of debt then yes your debt will just keep going up.

    So say you pay off $6k of your $50k debt, then you're down to $44k. But come 1st of June your debt will be bumped back up to $50.6k. This is not an issue if there is also wage inflation since you will also be getting paid 15% more per year. But most likely there will be stagnation, so prices rise but wages stay more or less the same. Then that debt really starts to become an issue.

    No real point talking about hyperinflation, as in that situation student debt will be the last thing you will think about.
     
  5. Kiren

    Kiren New Member

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    Yeah, I just found this article that talks about the danger of an student having a HECS Debt during runaway inflation.

    Look at the following quote:

    But what if inflation were to escalate? "If the CPI went through the roof, then you would be in all sorts of trouble," says Matthew Esler, head of technical services with Advance Asset Management.

    Source:
    https://finance.nine.com.au/2016/10/07/13/53/inflation-makes-hecs-costly
     
  6. bron.suchecki

    bron.suchecki Well-Known Member

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    If CPI understates inflation as many say then that may help matters.
     
    leo25 likes this.
  7. Kiren

    Kiren New Member

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    How do we know CPI understates inflation?

    Do we have any credible sources to support this?

    I found the following article, which makes sense because understating inflation benefits the government by resulting in the government paying much less social security payouts and other liabilities.

    https://www.zerohedge.com/news/2014-11-11/how-much-does-cpi-understate-inflation
     
  8. reaver

    reaver Active Member

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    My HECS debt has been indexed every year (roughly 1.9% annually over the last 8 years).

    Glad I will be HECS debt free as of EOFY.
     
  9. alor

    alor Well-Known Member Silver Stacker

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    cost of cup of hot drink at the store up by 10c
    cost of public transport to work up few cents
    cost of monthly rental up 50-100
    mostly impact the lower income most,

    car tax is not up
    computer price is not up
    satellite disk price is not up
     
  10. Kiren

    Kiren New Member

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    So if CPI goes up to 15%, but a person wage rises by only 2%, it would get progressively harder and more expensive to pay off one's HECS debt?

    And we can probably expect CPI to rise very high if Australia enters a financial crisis soon which looks like a real possibility?
     
  11. Kiren

    Kiren New Member

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    Based on what usually happens to other countries that experienced a financial crisis.
     
  12. alor

    alor Well-Known Member Silver Stacker

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    Location:
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    back in 1997, the Uni offered a 15% discount on school fee, but their currency devalued by 80%
    depending on each effected countries,
    so many students got to go home
     

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