Hecs Indexation: If you are looking for aid to continue your higher studies, HECS-HELP is the best loan provided by the Australian government. But one common cause of concern among people regarding HECS is indexation and interest!
To clear the air, HECS does not charge interest on the debt.
The HECS-HELP loan is free of interest. It is instead subject to indexation which means that the adjustments are made according to the Consumer Price Index (CPI). Your HECS debt will also change as everything other changes to keep up with the cost of living.
Indexation is added to your debt each year on June 1. HECS debts are not indexed until they’re 11 months old.
HECS Indexation Rates Over Time
The following rates contain the HECS indexation rate of the last 5 years and more.
How is the HECS Indexation Calculated?
The following steps will help you better in explaining how HECS indexation is calculated:
- The annual indexation is calculated on the basis of the Consumer Price Index (CPI). As it changes, the indexation changes.
- The Consumer Price Index (CPI) for the current year and the previous year are taken into account. Such as to calculate the HECS indexation for 2024, the CPI of the year 2024 and 2023 will be used for the computation.
Moreover you can also calculate the indexation on your debt using the HECS indexation calculators available online. They are a great tool to help you plan for your future and manage your expenses.
Major Drawback of HECS Indexation
One major drawback of HECS indexation is the rise in the cost of the entire debt. As we have explained before, the HECS debt works according to the CPI. It will result in increasing the entire debt which means that the debtors will owe more than they actually borrowed. It also means that it will take them longer to pay back the debt.
It is also discouraging for many students who are thinking of continuing their studies with the help of HECS-HELP. It can also affect the number of people pursuing their education which is obviously not good for a country and its economy. Therefore before the indexation hits you, you need to look for ways to escape or avoid it.
Ways to Reduce the Impact of Indexation on your Debt
Here are a few steps you can take in order to reduce the indexation effect on your HECS debt:
- By Making Voluntary Payments:
To reduce the impact of indexation on your debt, you can make voluntary HECS debt payments. You can make payments prior to the date to the ATO, there’s nothing wrong with it, in fact it’s good for you.
- By Increasing your Payments:
If you pay large HECS debt by making quick payments, it will decrease your repayment time and will help you in lowering the indexation rate on your HECS debt.
- By Paying off your Loan Early:
Paying off your loan before an increased indexation rate hits you in the coming year is also another way of reducing the indexation impact on your debt.
- By Making Lump-sum Payments:
If you have this financial capacity of paying one huge amount and clearing the debt, you should go for it. You can completely avoid the indexation if you pay the entire debt off.
- By Taking Advantage from Government Contributions:
The Australian government has a lot of incentives and schemes in helping students in paying off their loan. Such as if you make a voluntary payment of $500 or more, you will get a bonus of 5%. By staying aware and taking advantage of such schemes can also help you in reducing the impact of indexation on your debt.
HECS-HELP has helped many students in Australia to continue their education. It has also helped a lot with the Australian economy. But while taking up such a big loan, you have to think about its long term and short term effects on your finances.
This article will help you in understanding the HECS indexation rates, their impact and how you can calculate and reduce them.
So if you’re thinking of taking up the HECS loan, we hope this article has cleared all your doubts.