Student loans can be a source of concern for many individuals. And with rising inflation and cost of living it can be quite hard to pay it back
However, in Australia, the Higher Education Contribution Scheme (HECS) debt repayment system offers unique advantages and repayment strategies.
With recent changes to the HECS debt repayment system, it’s crucial to understand the process and make informed decisions.
In this article, we will explore the basics of HECS debt, how the repayment system works, and many helpful tips for managing and minimizing your debt.
What is HECS Debt?
HECS debt, which falls under the Higher Education Loan Program (HELP), is Australia’s most common type of student loan. You can opt for HECS-HELP or FEE-HELP to get a loan to fund your tuition fee.
Explore HECS-HELP and FEE-HELP, Australia’s common student loan options, for tuition funding. Learn more about tertiary education funding in Australia.
HECS- HELP provides interest-free loans to students enrolled in Commonwealth-supported institutions, primarily for undergraduate programs. FEE-HELP can be utilised in Commonwealth institutes of full-fee-paying institutes.
Unlike traditional loans, HECS debt doesn’t have a repayment deadline, and it grows at a slower rate than inflation, commonly known as indexation. That is the loan amount increases slowly with the rate of inflation in the economy. Having no interest and lower inflation indexation rates make it a more manageable form of debt.
Repayment of HECS debt Threshold and Calculation:
HECS debt repayments are based on income. You must earn over the threshold income to be eligible to repay. The good news is that if you are not making that much, you need not pay anything.
The income threshold for repayments changed in the 2023-24 financial year and is currently set at $51,550 annually.
Repayments for the debt amount are calculated on a sliding scale, depending on income brackets.
For example, individuals earning between $63,090 and $66,875 repay their HECS debt at 2.5%. Suppose you have a debt of $24,000 at the start of the year. That would mean you need to pay off just $600 towards your loan for the 2023-24 financial period.
The full breakdown of income thresholds and repayment rates can be found on Understanding HECS in Australia.
Managing HECS debt Repayments:
You need not to make any notable contributions towards your loan. Generally, HECS payments would be deducted from your income by your employer through the Pay-As-You-Go (PAYG) system. To learn more about the PAYG system and tax withholding, visit this informative article on PAYG tax withheld.
It would be best to inform your employer about your HECS debt status by checking the appropriate box on your Tax File Number declaration form. If you are not sure how to fill in a TFN declaration form, you can visit Tax Free Threshold
By ticking the correct box on the TFN declaration form, your employer will withhold the right amount from your salary for HECS repayments. And they would become part of your tax payable for the year-end.
Furthermore, if you have additional disposable income, you can voluntarily contribute to your debt and pay it off faster.
Options for Affordability:
You may fall in the threshold income range and have high living expenses. And therefore, if you find it difficult to afford your HECS repayments, a few other options are available.
In cases of financial hardship, you can apply to have your payments deferred for the entire year. Additionally, if you experience specific circumstances, such as a tragedy or economic problem, you may be eligible to have a portion of your HECS debt cancelled. However, it’s crucial to stay on top of your debt and explore repayment strategies early on.
Tips for Efficient HECS Debt Repayment:
While HECS (HELP or FEE) debt is considered “good debt” due to its interest-free nature, it’s still essential to manage it effectively. And due to its subjectivity to indexation, it may result in unwanted excess payments.
You need to stress not as your personal tax advisor, I will give you some tips and tricks to help you keep that loan balance at a minimum and get rid of it quickly.
Here are some tips to help you pay off your HECS debt quickly and efficiently
Conclusion and my take on HECS repayments:
In my public practice and tax advice years, I have frequently seen people falling off on their HECS payments. I have encountered a few who graduated 10 years ago and were still paying off their HECS payments. What became the reason? I believe that sheer laziness and incompetence with understanding the HECS system.
You need to stay on top of it, and if you don’t get rid of it soon, and end up piling up other debts, such as a house mortgage, credit cards, or a car lease. You will be stuck in an endless loop of paying off your loans until retirement.
HECS debt repayment in Australia is a unique system designed to make student loans more manageable. You can confidently navigate the process by understanding the essential aspects, such as income thresholds, repayment calculations, and available options. Utilize our helpful HECS calculator tool to estimate your repayment obligations and plan effectively. It will save you trouble when you need access to bigger loans and money to pay for a family.
While HECS debt doesn’t impose interest and has no strict deadline, it’s crucial to plan and manage your finances effectively.
By following the tips provided, I am sure you can take control of your HECS debt repayment journey and confidently pursue your financial goals.