Why you won't see a HECS-HELP credit in your tax return

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Australians with student loan debt have been warned not to expect to see a HECS or HELP loan credit on their tax returns in the coming weeks.

Back in May the federal government announced that it would seek to change the way student debt is indexed - a move that it anticipates will remove around $3 billion worth of debt for more than three million current and former students.

Student debt balances have traditionally been indexed in line with the Consumer Price Index (CPI) on June 1 each year, which hadn't been much of an issue in the past when inflation was low.

Australians with student loan debt have been warned not to expect to see a HECS or HELP loan credit on their tax returns in the coming weeks.

But in June 2023 when inflation was just over its peak, the indexation rate came in at 7.1%. This was the highest figure in decades, and one which was viewed as another blow to many young Australians already dealing with the fallout from soaring living costs.

In the wake of this sentiment and a recommendation that came out of the Australian Universities Accord, the government proposed to change the indexation calculation to ensure that balances increase in line with the lower of the Consumer Price Index or the Wage Price Index (WPI).

The change would also apply retrospectively from June 1, 2023, meaning that all debts in existence at that point would be indexed at a rate of 3.2% rather than 7.1%, while the annual indexation rate for this year would be 4% rather than 4.7%.

How much will the indexation changes save you?

The indexation reforms are likely to have a noticeable impact going forward, but because they will also be backdated, people with current student debts (or debts which existed in June 2023) will also be eligible for a credit.

For instance, the government estimates that someone with an average student loan balance of $26,500 will be in like for a credit in the region of $1200.

Anyone looking to find out how much of a refund they'll be looking at can use the government's HELP Indexation Credit Estimator, though as the name implies, it provides a rough estimate based on student loan balances as of June 2023 - it's not a guarantee.

When will the credits be applied?

So when will people with an existing HECS-HELP debt actually see a credit come through, and how will it be applied?

Some may have been expecting to see a credit on their tax returns in the coming weeks, but because the indexation reforms need to be legislated before they can kick in - and that hasn't happened yet - the 'when' part of the equation is still unknown.

As Coco Hou, managing director of Platinum Accounting Australia explains, the 'how' depends on whether the debt is still active or not. Those with outstanding debt will have their balance credited.

"Credits or adjustments from changes in indexation are applied to the outstanding loan balance, not reflected as a credit on tax returns.

"This change is retroactive, applying to the 2023-24 financial year when the indexation rate was 7.1% based on CPI. So the ATO will automatically apply a credit to current HECS-HELP borrowers' accounts to reflect the lower 3.2% indexation rate."

However, those who have paid off their student debt since June 2023 will receive a refund from the tax office down the line if they don't have any other tax-related debts.

"Individuals who fully paid off their HECS-HELP loans within the past year will also receive a credit, but as a cash refund rather than an account adjustment. This is because they no longer have an outstanding loan balance for the credit to be applied to," says Hou.

Getting ready for tax time? Read up on these five deductions you might not know about, or start the new financial year on a high with these seven tips.

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Tom Watson is a senior journalist at Money magazine, and one of the hosts of the Friends With Money podcast. He's previously worked as a journalist covering everything from property and consumer banking to financial technology. Tom has a Bachelor of Communication (Journalism) from the University of Technology, Sydney.
Comments
John Kanis
July 22, 2024 12.10pm

Thank you for this article - I received incorrect advice from the ATO helpline which stated that the indexation discount was applied by discounting the amount (not the interest rate) that the indexation applied to - and therefore it was reflected in my tax return in FY24 (just cleared HECS balance and was expecting a refund alongside the tax return).

I ran the numbers and the advice provided by the ATO was incorrect.

look forward to receiving a cash refund for the HECS credit balance once the credits are applied.