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Reclaiming HECS debt from dead Aussies won't work

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A proposal to recover unpaid HECS/HELP debt from deceased estates has been slammed by one of the founders of the education loan system.

ANU Professor Bruce Chapman, who helped design the system, said the Grattan Institute's proposal goes against the basic concept of the student loan scheme - to only be repaid by Australians who had seen financial returns for their education.

"HECS says we want to give you some money for your education and only when you have the returns for your education you can pay it," he told Money.

hecs repay after death

"If you don't have the returns, it hasn't worked out for you and that's why it's forgiven."

Around 85% of HECS student loans are repaid, and it's understood that graduates who haven't repaid their loans simply can't afford to, Chapman says.

When HECS was introduced in 1989, graduates had to start repaying their debt when they earnt more than $74,000 a year in today's dollars. Today that threshold is $47,000.

The loans initially accumulated no interest, but they are now indexed to match inflation.

"It was always considered that you would not get 100% back because the system is income-contingent, and it's to protect people from things out of their control, for example, if they graduate in a recession like now," Chapman says.

Reclaiming money from deceased estates will not work, he says.

In one example, Chapman asked if a 32-year-old nurse with kids and an unpaid HECS debt of $25,000 was killed in a car accident, would her assets be withheld from her children to repay her student loans?

Graduates could also structure their estates to avoid dying with assets in their name.

Financial coach Karen Eley says a proposal to recoup HELP /HECS debts from estates worth more than $100,000 would hit young families hard.

"There really needs to be consideration to the beneficiary's financial circumstances - while the estate's assets might be worth $100,000-plus, there could be three children, a non-working spouse, and a $400,000 joint mortgage and car loan left behind," she says.

"Having to pay out a lump sum could be detrimental to their financial position as any outstanding mortgage would most likely revert to the surviving spouse.

"The loss of a young spouse is already detrimental, both emotionally and financially, adding a HELP/HECS debt to this could potentially cause a lot more stress.

"It seems inequitable to take from an estate when the individual may have never had an obligation to repay the debt (based on income being under the threshold)."

Pivot Wealth financial adviser Ben Nash says women would be more negatively impacted by this policy.

"They may take more time out of the workforce to raise children, meaning it would take them longer to pay down their HELP debt and mean again for those that were to pass away at a young age that there would be a higher debt for their dependents to pay."

According to the ATO, the average HECS/HELP debt is around $22,000 but some can be as high as $100,000.

The HECS repayment threshold is significantly lower than the average salary, indicating that if someone has not paid off or commenced paying off their HECS/HELP debt, they are not earning enough to live comfortably and service the debt, says Silway Private Wealth financial adviser Diana Saad.

"It also indicates that most of these HECS/HELP debtors who pass away are unlikely to have amassed significant wealth, given their below average income."

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Julia Newbould is the managing editor of Money magazine. She was previously editor of Financial Planning and Super Review magazines; managing editor at InvestorInfo and at Morningstar Australia. Julia co-authored The Joy of Money, a book on women and personal finance. She holds a Bachelor of Economics from the University of Sydney where she serves on the alumni council.
Comments
David Jeffery
February 17, 2021 6.12pm

The Government should incentivise young people (if they have the capacity to pay or family member to assist) to pay off their HECS debt upfront by providing a worthwhile discount of say 20% - 25% of the amount owed. I am sure a number of people would pay up front to clear the debt. The system does need to be reviewed.

Robyn Moffat
February 17, 2021 9.18pm

David, this used to be the case. When I came through uni (early 2000s), there was a 25% discount for paying, I think it was more than $500 upfront. It then dropped to a 15% discount, and then disappeared completely. When the discount was available, I was literally cleaning out my bank account to pay my fees upfront, just to get the discount. Now that there's no discount, I haven't paid anything on my HECS debt for years. I wonder if the government has any statistics on how many other people did the same as me.

Danielle G
February 17, 2021 4.54pm

It took me 10 years to pay off my HECS debt.

A lot of people don't realise a HECS debt also impacts your home loan borrowing capacity.

What about all the people who go overseas to live/work? Once they stop lodging an Australian tax return they don't need to pay it back. Maybe we should focus on some of these people, especially if they are earning big money in their overseas jobs.

Money magazine
Verified
February 17, 2021 4.58pm

Hi Danielle,

Australians living overseas have been required to make HECS payments since July 2017.

https://www.moneymag.com.au/he...

- Money team

Danielle G
February 17, 2021 5.07pm

That's really interesting because a few people I know have moved overseas and they have actually bragged to me about not needing to pay back their HECS (they knew it was a sore point for me).

But if the government is somehow getting it that's great.

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