Architect of HECS: Bruce Chapman. Photo: Sean Davey
The debt burden carried by graduates is set to double under the government's higher education reforms, making it even harder for young people to get a foothold in the property market.
Housing experts have warned the double whammy of bigger fees for many courses and higher interest rates on student loans will stifle graduates' ability to save for a deposit, a crucial hurdle to home ownership.
A director of the centre for housing, urban and regional planning at the University of Adelaide, Andrew Beer, said the changes were bad news for housing affordability.
''Young Australians are going to be finishing study with more debt than ever before and that is going to make it harder for them to save a deposit and get into a financial position where they can move to home ownership,'' he said. ''Access to home ownership is going to be much, much more difficult.''
A leading researcher on the housing market, Dr Judy Yates, said the reforms would inevitably affect the capacity of young people to borrow for a home.
Wednesday's budget unveiled sweeping changes to higher education that will be introduced in 2016. This includes the deregulation of course fees, which is likely to make studying at popular, big-name city universities much more expensive. Also, the interest charged on student loans will no longer rise with inflation - typically about 2.5 per cent - but be pegged instead to the government's cost of borrowing, up to 6 per cent.
The architect of the HECS student loan scheme, Bruce Chapman, said average student debt was about $20,000 but that was likely to double under the new system. It now takes about eight years, on average, to pay off a HECS debt but he estimates that will blow out to roughly 13 years.
Professor Chapman believes it is plausible the cost of some degrees could soar to $120,000 - the fee international students pay to study medicine at Sydney University.
Paul Koshy, from the John Curtin institute of public policy, said that under the current system the average HECS debt of $20,000 would rise to $26,900 over 15 years without repayments. But under a potential new interest rate of 4.5 per cent (rather than inflation) that debt would balloon to nearly $39,000.
Lenders take student loans into account when borrowers apply for a mortgage. One senior banking source said the higher education changes could have ''unintended consequences'' for the property market and might prompt banks to rethink the credit-worthiness of home borrowers.
An economist who heads the Australia Institute, Richard Denniss, said the reforms would postpone the point at which graduates could accumulate a housing deposit. ''That's the real kicker for young people out of this,'' he said.
Dr Denniss said those studying at universities in Sydney would face some of the highest fees, meaning a bigger debt burden for locals if they want to study near home. ''In turn, you will be postponing even longer the date at which you can start to save for a deposit which will make it even tougher to stay near your family in Sydney,'' he said.
Professor Beer said higher university fees might even contribute to upward pressure on house prices. ''When graduates enter the workforce with bigger debts they will demand higher wages to compensate,'' he said.