Impact of rising interest rates on families and education

Interest rates have risen at the fastest pace in over 25 years from a low of 0.1% in November 2020 to over 3.5% as the Reserve Bank tries to use the cash rate to control inflation in the economy.

These changes are compounding the current cost of living as families start to face higher mortgage repayments, with more households expected to be affected as they roll off their fixed-rate mortgages over the coming months. This means more families are being forced to adjust their family budgets and review their expenses including costs like education.

How has this impacted families so far

Off the back of historically-low interest rates during the pandemic, there’s been a series of increases to the official cash rate since May 2022 with the potential for further rises.

Source: Reserve Bank of Australia

As higher rates are passed onto households we’re starting to see mortgage repayments becoming a larger portion of their income. Recent analysis of our data has found that families are having to allocate a greater percentage of their income on home loan repayments compared to previous years, where they now account for almost a quarter of their household income.

Source: Edstart - based on payment plan applications

We’re also beginning to see more families needing to draw on the flexibility we provide to align school fee payments with their budget, with more parents making adjustments to their payment plans this year.

Source: Edstart

The impact to families is consistent with what some of the major banks have reported recently, where they are seeing a greater number of borrowers falling behind on 30-day repayments.

The looming “mortgage cliff”

Many industry experts and economists have warned of the “mortgage cliff” where households that haven’t been affected by rate increases so far will come off their fixed-rate mortgages.

According to Commonwealth Bank’s CEO, Matt Comyn, only half of borrowers have been impacted by interest rates so far, with another 50% to come due to a mix of variable and fixed-rate mortgages, as well as the delay of banks passing on rate increases. More than 800,000 households are expected to experience higher interest rates as they come off their fixed-rate mortgages.

With further rate rises predicted, many families will have to continue to monitor their budget as they have less money left to spend on other expenses including education.

How can families prepare

Prepare and plan as early as possible

Early planning is important and can make a significant impact on your family budget. When mapping out your budget make sure to factor in any potential changes like increased mortgage repayments and larger energy bills to give you a buffer.

Minimise upfront payments and lock-in arrangements

Explore options where you have the flexibility to make payments that align with your budget. Be aware of contracts where there might be substantial exit penalties so that you are not locked in if your circumstances change.

Communication is key

If you feel like you’re getting towards a situation where fitting school fees into your budget could become an issue, contact your school so you can have a conversation with them as early as possible.

How can schools prepare

Be transparent and open about fees

Communicating clearly and openly about fee payment options is a good idea to help strengthen trust with your parents and encourage a line of communication about their ability to pay their school fees on time and whether they need help.

Take early action with parents

Schools can implement simple actions to spot patterns early for parents who might need financial assistance. If your fee payments are automated, daily reports and weekly reports about the number of missed payments that are occurring can help identify any parents that may need support.

We’ve been helping our partner schools on this with our fee management service where we’re able to keep schools informed when families are at risk of falling behind on payments. Schools can also access real-time information through a dedicated portal as part of our Edstart Plus offering.

Matching school fee payments to family budgets

Offering as much payment flexibility as possible is also crucial in helping families manage their budgets. Families are now used to paying for items in a way that aligns with their income, and this is especially important for parents that are small business owners to choose a payment structure in line with their seasonal cash flow.

Plan for the impact to last longer

The current economic condition is likely to be more permanent than what happened during the pandemic. Schools should factor this into their budgets so that they’re able to continue to support families over a more extended period to ensure the best outcome for both families and the school.

Related articles

Parents with lower income receive more relief from fee increases in 2023

How families are adapting to the growing cost of living

How helping families budget is impacting student education and enrolments