Brokers have their say on student debt lending changes

In a statement released on Wednesday (12 February), Chalmers confirmed he had instructed both the Australian Securities and Investments Commission (ASIC) and the Australian Prudential Regulation Authority (APRA) to update their guidance regarding the way Higher Education Loan Program (HELP) debts are treated by lenders.

Responsible lending rules currently require lenders to assess student debt in the same way as they would any other debt, such as credit card debt or a personal loan.

This is despite the student debt not needing to be repaid if the holder is unemployed or making less than $54,435 in 2024–25 or $67,000 in 2025–26.

Both the Mortgage and Finance Association of Australia (MFAA) and the Finance Brokers Association of Australia (FBAA) backed changing how student debt is treated in servicing.

MFAA CEO Anja Pannek said: “We surveyed our members, and the message from them was clear – the rules governing HECS-HELP debt when it comes to home loans were prohibitive to first home buyers entering the market and needed to change.”

Peter White, managing director of the FBAA, said: “We welcome the government’s changes that will exclude HELP repayments from the serviceability assessment where the borrower is expected to pay off their debt in the near term.”

“If an applicant has only a few months left on their debt, this should not affect their capacity for a long-term mortgage.”

However, White stressed that more clarity was needed regarding the guidelines.

“More details need to be known around how the ‘near term’ will be evaluated, as if an applicant has a number of years left on their HELP debt, both loans need to be serviced together, and the lender should consider this in their assessment,” he said.

He called for further changes to be made to lending rules so that borrowers could service their loans more easily, particularly in times of economic volatility.

“While this will help a section of the community, the FBAA believes the federal government should help many more Australians to secure a loan by directing the regulator to reduce the buffer rate,” he said.

White pointed to the 3 per cent mortgage serviceability buffer, which he said is “one of the largest obstacles in the assessment process and is preventing thousands of Australians from purchasing a home and forcing thousands more to remain in mortgage prison unable to refinance”.

Brokers have also issued their thoughts on the matter. Matt Turner, managing broker at GSC Finance Solutions, questioned the measures’ effectiveness.

“There is a big focus on giving access to more credit as a solution to the housing crisis which only pushes up prices,” Turner said.

“By removing HELP from the servicing calculation, we are not factoring in a real cost the client has in their budget as well, so there are questions as to whether that, in itself, is responsible.

“I really want to see something that helps on the supply side, rather than further fuelling demand for housing and credit growth.”

Home Loan Experts senior mortgage broker Jonathan Preston also questioned the logic of the suggested reforms and their impact on young borrowers without student debt.

“I don’t understand this. If they get a concession so they don’t have to include their HECS debt in servicing, that sounds noble and all, but these people still might struggle to afford the repayments. And if they don’t struggle to afford the repayments, that is proof that the buffers are too excessive to begin with,” he said.

“I hate that students are being selectively targeted, but I also dislike that this means other normal borrowers are now going to be treated unfairly.”

He questioned what would happen to those who used cash savings to pay off their HECS debt and whether they would have this money paid back.

Preston agreed with White that the serviceability buffer also needed to be reviewed to help younger prospective home buyers.

“In the end, the excessive buffers are what are causing issues for all borrowers, and I don’t see how ignoring massive student debt for some and not other kinds of debt for others is fair. For example, this screws over all the tradies, presumably. They didn’t have to take out HECS debt, or if they did, it was not much and didn’t take long to pay off.

“What about anyone who never got to go to uni or borrow the money for it – people who started working full time at 17?

“I think a more fair policy would be to use a lower tax rate for everyone else, as an equaliser. Or your APRA buffer could be lower if you have no student debt,” he said.

Readers reflect on changes

The Adviser’s readers had mixed reactions to the suggested changes, with chrishutton describing it as “an announcement for an announcement’s sake”.

“It won’t make a significant difference because the statement talked about HELP debts that were nearly paid off,” he said.

“This is just removing a debt that has one or maybe two years left on it. This will help only a portion of a portion of home buyers.”

Jbattaglia agreed that changes did not go far enough, warning that it was a “Band-Aid approach” and ignored the underlying problem.

“Adjusting serviceability assessments might make a marginal difference for some, but it does nothing to address the actual barriers to home ownership: skyrocketing house prices, excessive taxation on property transactions, and restrictive lending policies that choke supply,” Jbattaglia said.

One reader fumed that the changes were little more than “another example of bullshit baffling brains in an election year”.

“A BIG headline with no real substance in it,” he raged.

[Related: Major changes to HECS home loan rules]