To Pay or Not to Pay: The HECS/HELP Debt Dilemma

HECS/HELP Loans have been attracting quite a lot of attention in the media of late and we are getting a number of questions from our clients on the topic. It comes after a record indexation rate on the 1st of June 2023, which saw Australian’s HELP loans increase by 7.10%.

While the Australian Tax Office (ATO) hasn’t formally confirmed the indexation figures yet, estimates are in the range of 4.2% to 4.8%. At this stage, it is likely that indexation will be on the higher end of this range. This would be a decent decrease on the indexation rate from 2023, however is still historically high when comparing to prior years.

YearIndexation rate
20237.10%
20223.90%
20210.60%
20201.80%
20191.80%
20181.90%
Source: Australian Tax Office (ATO)

When is HECS/HELP debt indexed?

The Indexation will be done on the 1st of June this year. Estimates have been made for how much this indexation will be, but we will need to wait until the upcoming Federal Budget in May to know if there are any changes to the way this indexation rate is calculated. It has been indicated by the Federal Education Minister Jason Clare, that he is open to changing the way the repayments are calculated. Whether or not there will be any changes remains to be seen.

What does this mean for your HELP loan?

It means that after a 7.10% increase in 2023, your HELP loan will be indexed by a further 4.2-4.8% in this year.

Indexation is based on the consumer price index (CPI) number and is done to keep pace with the rate of inflation.

This CPI indexation is still more affordable when compared to some credit card rate and personal loans which could have an interest rate upwards of 10%. Aussies are also earning more in 2024. The average annual wage growth in Australia was 4.2% in the December quarter of 2023 (Source: abs.gov.au).

How do I pay back my HELP Loan?

Repaying you HECS-HELP debt commences once your Repayment Income (RI) is above the minimum repayment threshold for compulsory repayment. That is, once your taxable income reaches a certain level. The RI thresholds are adjusted each year.

The minimum RI threshold to make a loan repayment for 2022/23 is $51,550. Where income exceeds this threshold, a compulsory repayment of at least 1% of your income is raised in your income tax assessment. The percentage increases as your income increases.

Rates for 2023-24 are as follows:

Repayment income (RI)Repayment rate
Below $51,550Nil
$51,550 – $59,5181.00%
$59,519 – $63,0892.00%
$63,090 – $66,8752.50%
$66,876 – $70,8883.00%
$70,889 – $75,1403.50%
$75,141 – $79,6494.00%
$79,650 – $84,4294.50%
$84,430 – $89,4945.00%
$89,495 – $94,8655.50%
$94,866 – $100,5576.00%
$100,558 – $106,5906.50%
$106,591 – $112,9857.00%
$112,986 – $119,7647.50%
$119,765 – $126,9508.00%
$126,951 – $134,5688.50%
$134,569 – $142,6429.00%
$142,643 – $151,2009.50%
$151,201 and above10%
$134,569 – $142,6429.00%
$142,643 – $151,2009.50%
$151,201 and above10.00%
Source: StudyAssist

Your repayment amount will be calculated when you do your tax return for the year. Essentially this will be added to your tax bill and reduce any refund (if any) that you receive.

TIP:  Make sure that you inform your employer that you have a HELP debt. Your employer may be able to withhold additional tax from each of your pays to cover your estimated loan repayment. This will reduce the likelihood of receiving a tax bill when you complete your return.

If you are self-employed, ensure you are putting money away for your tax savings throughout the year to cover your loan repayment.

Should I make additional payments to my HELP Loan?

You can make additional payments to your Loan at any point by BPAY to the ATO, and this is a matter of personal preference. From a risk-return point of view, the cash that you are allocating to your HELP loan is going to work at 4.80%. This is essentially a guaranteed return on your money of 4.80% which may be higher than your banks savings account. However, if you think your cash can be put to work elsewhere at a better rate of return, you may elect to allocate the money to other investments. This all depends on your tolerance for risk and investment time-frame.

If you are considering investing the money instead of paying down your HELP Loan, we would suggest speaking with a financial adviser who can assess your tolerance for risk and provide expert investment advice.

What happens to my HELP Loan if I die?

The executor of your will will lodge a final tax return and if the notice of assessment includes a compulsory HELP debt repayment for the period before death, the executor will need to make that repayment. Apart from that, the remaining HELP balance is written off upon death.

For more information on your HELP loan or to discuss strategies on reducing your debt, you can contact one of our advisers through this website or phone 07 3378 9681.

DisclaimerThe information in this article is general and does not take into account your particular circumstances. We recommend specific tax or legal advice be sought before any action is taken and refer to the relevant Product Disclosure Statement before investing in any product. Current as at 1 March 2023.

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