HECS repayment: should I repay my HECS debt or HELP debt early?
30 Aug 2022
Is it worth repaying your HECS-HELP debt early, or is your money better spent elsewhere? Here are some of the issues to consider.
They say there’s no such thing as a free lunch and that is certainly true when it comes to a university education in Australia. You will have to pay up but the government does offer a range of student loans to help cover some of the costs of studying in the form of HECS-HELP.
What is HECS-HELP?
The Australian Government’s StudyAssist website explains that HECS-HELP is a scheme to assist Commonwealth-supported students to pay fees, known as their ‘student contribution amount’, with a loan. Eligibility criteria apply, and students need to be studying at an approved HECS-HELP provider, such as a major university, to get a HECS-HELP loan.
Who is eligible for HECS-HELP?
Students are generally eligible for HECS-HELP if they are enrolled in a higher education unit of study as a Commonwealth-supported student, and meet citizenship and residency requirements. However, many current and past students may not know how much they owe or understand how and when to repay the loan.
When do I have to repay my loan?
If you need to repay a HECS-HELP debt, the first thing to understand is that all required repayment amounts are based on what is called your ‘repayment income’, which is defined by the Australian Taxation Office (ATO) and calculated using a particular formula.
You generally have to start repaying your HECS-HELP loan when your repayment income reaches the minimum threshold amount (often called the HECS threshold or HELP threshold), which started at $47,014 for the 2021/22 financial year and starts at $48,361 for the 2022/23 financial year. The amount you must repay is set as a percentage of your annual repayment income.
For example, the table below shows how much you’d have to pay based on various annual repayment income amounts. The ATO says the repayment thresholds and rates are indexed on 1 June each year.
HECS-HELP loan repayment rate examples – FY21/22
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| Financial year |
Repayment income |
Rate | Repayment amount (per year) |
|---|---|---|---|
| 2021/22 | $50,000 | 1% | $500 |
| 2021/22 | $80,000 | 5% | $4,000 |
| 2021/22 | $110,000 | 8% | $8,800 |
Source: Calculated using repayment rates from the ATO, 2022.
If you have submitted your FY21/22 tax return and are thinking ahead, the following rates will apply for the current financial year (FY22/23).
HECS-HELP loan repayment rate examples – FY22/23
| Financial year |
Repayment income |
Rate | Repayment amount (per year) |
|---|---|---|---|
| 2022/23 | $50,000 | 1% | $500 |
| 2022/23 | $80,000 | 5% | $4,000 |
| 2022/23 | $110,000 | 7.5% | $8,250 |
Source: Calculated using repayment rates from the ATO, 2022.
For a full list of the applicable repayment income thresholds and rates across recent financial years, visit the ATO’s website.
If you are working, your employer can take repayments out of your wages. It’s a good idea to let your employer know (in writing) that you have a student loan – they will then estimate a repayment amount based on your salary. You can do this by completing a Tax File Number (TFN) declaration form, and you may need to complete a new form each time you start a new job.
You can also make voluntary contributions, the ATO explains. To do this, you can either pay the ATO directly via BPAY, credit card or direct credit, or you can make a salary packaging arrangement with your employer..
Making voluntary repayments can help avoid bill shock at tax time, if these amounts haven’t been taken out throughout the year. However, the ATO also warns that voluntary repayments are not refundable or tax-deductible.
How do I know how much I have to repay?
The ATO calculates your annual compulsory repayment based on your repayment income, and this is included on your income tax notice of assessment. If you’d like to estimate your own repayment amount, take a look at this tax office calculator. You can also find out how much you owe by checking with the ATO on myGov. It is worth noting that the government may legislate changes to student loans and existing repayment arrangements from time to time.
Should I pay back my loan early?
While there is no interest payable on your HELP debt, indexation is applied on 1 June each year in line with changes to cost of living. In 2022, the indexation factor was 3.9%. Because HECS-HELP debts are indexed to inflation, and this is currently rising (along with the cost of living), you may decide it could be a good time to repay some of your student loan. Before the pandemic, the indexation rate averaged about 2%, or around half of the increase recorded last financial year.
Keep in mind, though, that although your HECS-HELP loan balance will be compounding over time, it’s at a very low rate compared to most other forms of credit. So, your overall financial position is important in deciding whether or not it’s a good time to repay more of your student loan or to prioritise other debts and expenses.
There’s really no ‘one-size-fits-all’ answer – it depends on your income, your expenses, your circumstances, and what’s most important to you. You may find it’s helpful to seek professional financial advice to support you with your decision making for which debts to repay first. It could also be a good idea to do up a budget, and consider how much you are repaying on your student loan, versus how soon you could pay it off entirely with some larger voluntary repayments.
Advantages to early repayment
Making voluntary contributions on top of your compulsory ones will definitely help pay down the loan faster. Any voluntary repayments will be a credit to your HECS-HELP balance. Although voluntary repayments for study and training support loans (including HECS-HELP) are not refundable, the ATO recommends that if you would like to make a voluntary repayment, an ideal time to do this is before you lodge your tax return. The ATO says you might also benefit if a voluntary repayment is received before indexation applies, which happens on 1 June each year.
Other factors to consider
- Early on in your career, you may have other priorities such as travelling, or saving for a car or home loan deposit.
- A car loan, credit card balance, buy now pay later (BNPL) debt, personal loan, home loan or any other debt will usually have a higher interest rate and compound more quickly over time than your student loan. So, if you have other debts, you should consider paying these off first.
- Paying off any higher-interest loans more quickly may also be better for your credit rating. Keep in mind though that as with other debts, a bank will usually consider any HECS-HELP debt if you apply for a loan or mortgage, and this may affect the loan amount it is willing to offer you.
Does it make sense to pay off my HECS early?
Does it make sense to pay off your HECS-HELP debt or other student loan early? This all depends on your priorities. Do some calculations – can you earn more than that amount (i.e. the indexation rate for your debt) by using your money in another way? Will you need savings for other things, such as saving for a home deposit? In that case, you may want to build up your savings even if the interest you are earning is not high.
However, you might find that considering your financial position, now could be a great time to repay some of your student debt. It will really depend on your personal circumstances, and you may find it helpful to seek professional financial advice to support your decision making.
Options for your savings
If you are considering savings, there are a number of options available:
- For first home buyers, the government’s First Home Super Saver Scheme (FHSS Scheme) means you can earn a higher rate of interest on money saved into your superannuation, and you can withdraw some super savings to contribute to a home deposit.
- Some banks offer higher short-term variable interest rates on savings accounts. To qualify, you’ll usually need to meet particular terms and conditions (such as a minimum monthly deposit and not making withdrawals in a certain period).
- There are many longer-term investment options available – both inside and outside of your super – which may offer a better rate of return than the relatively low savings rates currently on offer. However, please be aware that higher potential returns usually come with higher risks and that past performance is not a reliable indicator of future performance when it comes to investment products.
Additional 2022 reporting by the Canstar Editorial team.
Main image source: Rawpixel.com/Shutterstock.com.
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This article was reviewed by our Sub Editor Tom Letts and Sub Editor Jacqueline Belesky before it was updated, as part of our fact-checking process.
