HECS-HELP debt is one of the better investments you can make in yourself and your future career. For this reason, there is often little thought put into how much you are accumulating and how you are going to pay it back. Tertiary education hasn’t been free since the Gough Whitlam era over 30 years ago, and the Higher Education Contribution Scheme was introduced shortly after Whitlam was dismissed from office.
HELP Loans as they are known today, do have to be paid back and the loan balance will increase over time. The loan amount however isn’t increased by an interest rate, like your home loan or credit card debt, rather it is indexed by inflation.
Each year on the 1st of June, your HELP loan will be indexed by the consumer price index (CPI) number. CPI is a measure of the increase in cost of living.
|Source: Australian Tax Office (ATO)|
Prior to 2022, we lived in a low inflation world. CPI was 0.6% as at June 1 2021, and given that rate you wouldn’t be too concerned about paying down your HELP bill. Recently though, the repercussions of ultra-cheap money during Covid Lockdowns and supply constraints, war in the Ukraine and revenge spending on services like restaurants and travel, have seen prices of goods and services sky-rocket to 7.1% as at 1 June 2023.
What does this mean for your HELP loan?
It means that the indexation applied is going to be much higher this year, rising from 0.60% in 2021 to 7.10% in 2023.
No reason to panic though, monetary policy (RBA interest rate decisions) is starting to take effect and the announcement on 26/07/2023 from the RBA saw CPI moderate down to 6% in the June 23 Quarter.
The Reserve Bank of Australia (RBA) is responsible for monetary policy, and sets the target ‘cash rate’ or market interest rate. Their target range for inflation is 2-3%, on average, over time. The raising of interest rates helps to achieve this target.
So, while this year’s HELP indexation is a large one, it shouldn’t be this high for long.
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 2023. The average annual wage growth in Australia was 3.7% in the March Quarter of 2023 (Source: abs.gov.au) and minimum wages increase by 5.75% (Source: fairwork.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:
|2023-24 Repayment threshold||Repayment % rate|
|$51,550 – $59,518||1.00%|
|$59,519 – $63,089||2.00%|
|$63,090 – $66,875||2.50%|
|$66,876 – $70,888||3.00%|
|$70,889 – $75,140||3.50%|
|$75,141 – $79,649||4.00%|
|$79,650 – $84,429||4.50%|
|$84,430 – $89,494||5.00%|
|$89,495 – $94,865||5.50%|
|$94,866 – $100,557||6.00%|
|$100,558 – $106,590||6.50%|
|$106,591 – $112,985||7.00%|
|$112,986 – $119,764||7.50%|
|$119,765 – $126,950||8.00%|
|$126,951 – $134,568||8.50%|
|$134,569 – $142,642||9.00%|
|$142,643 – $151,200||9.50%|
|$151,201 and above||10.00%|
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.
HOT 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.
Disclosure: We are not registered tax agents and we have not taken into consideration your own personal situation. We recommend speaking to a tax agent on any tax related advice.
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 7.10%. That is a pretty decent guaranteed return on your money. 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 that. This all depends on your tolerance for risk and investment time-frame.
If you would like to know your risk profile, you can contact one of our advisers through this website or phone 07 3378 9681 for an assessment.
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.