A beginner's guide to HECS-HELP debt
HECS-HELP is a loan scheme for eligible students enrolled in Commonwealth-supported places to pay for the cost of your course. It doesn't extend to additional costs such as accommodation or textbooks.
To help you better understand how these loans affect you and your taxes, we've put together a comprehensive guide to HECS-HELP.
What is HECS-HELP?
HECS-HELP is both a loan and a student discount. Let's say you're an eligible student - the Australian Government (through the HECS-HELP scheme) will pay the amount of your course fees directly to your education institution.
Once your income reaches a certain threshold (currently $46,620 for the 2020-21 financial year), you then need to start repaying the loan through the tax system. If you wanted to pay off your debt faster, you can make voluntary repayments, regardless of how much you earn.
A HECS-HELP debt kicks off immediately after the elected 'census' date for any university course you've nominated to receive HELP assistance for.
Am I eligible for HECS-HELP?
To qualify for HECS-HELP, you have to meet the following criteria:
- Be studying in a Commonwealth supported place;
- Be an Australian citizen; or
- Be a New Zealand Special Category Visa holder who meets the long-term residency requirements; or
- Be a permanent humanitarian visa holder;
- Be enrolled in each unit at your university by the census date; and
- Submit a valid request for Commonwealth support and HECS-HELP form by the census date (or earlier administrative date) to your university.
How much do I have to repay?
Your HECS-HELP debt repayments will take effect through your taxes once your income passes the compulsory repayment threshold, even if you're still studying.
The minimum Help Repayment Income (HRI) thresholds change each year. For 2020-21, the threshold is set at $46,620. Where income exceeds this threshold, a compulsory repayment of at least 1% of your income is payable as part of your tax assessment. The percentage increases in tandem with your income.
Rates for 2020-21 are as follows:
What is the repayment income threshold?
Your HECS-HELP repayment income (HRI) differs from your taxable income. Calculate it like this:
- Your taxable income for an income year, plus
- Your total net investment losses, plus
- Any total reportable fringe benefit amounts shown on your PAYG payment summary; plus
- Reportable super contributions; and
- Any exempt foreign employment income from the current income year.
Repaying your loan
When you start a new job, make a note to let your employer know you've got a HECS-HELP debt. Just tick the box on your tax declaration form which you'll need to fill out before you start work.
Your employer will set aside additional tax from each pay to cover your estimated HECS-HELP debt based on your annual HRI. Keep in mind, your employer will withhold the additional tax based on the income they pay to you. They won't factor in other income sources, previous jobs or investments. So, if you've got any of these sources of income, you'll have to make a top-up payment once you lodge your tax return.
If you like to stay ahead, you can make voluntary repayments anytime to the ATO by BPAY or credit card.
Should I pay off my debt early?
It always makes sense to pay off debt, though as student loans are essentially interest-free (except for indexation, see below), it generally makes sense to pay off other debts (such as credit cards, overdrafts, personal loans and mortgages) first since all these other debts have much higher interest charges imposed.
Is interest added to the loan?
On June 1 each year, indexation is applied to any accumulated student loan that has remained unpaid for more than 11 months. The current rate of indexation is 1.8%, but this changes each year. The rate of indexation is pegged to the rate of inflation so in theory, the value of the loan is only increased to reflect changes in the cost of living
If I move overseas what happens to the debt?
You are still required to pay HECS-HELP debt if you move overseas, assuming you are earning more than the minimum repayment threshold of $46,620.
If you go overseas, you must update your contact details with the ATO if you plan to stay overseas for 183 days or more in any 12 months. You must also lodge your worldwide income with the ATO, or non-lodgement advice.
Staying out of the country for any period of time won't lead to the ATO wiping the debt.
Do I still pay if I drop out?
Generally, yes. Even if you abandon the course, the debt still exists, so you still have to repay it in accordance with the rules outlined above, unless special circumstances apply (such as serious illness), in which case you can apply to have the debt cancelled.
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