HECS repayment: should I repay my HECS debt or HELP debt early?

11 August 2021
Is it worth repaying your HECS debt or HELP debt early or is your money better spent elsewhere? Here are some of the issues to consider – especially with interest rates at record lows.

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.

How does the HECS-HELP loan program work?

Students are able to access these loans provided they meet all of the eligibility requirements. Generally you are eligible for HECS-HELP if you are enrolled in a higher education unit of study as a Commonwealth-supported student, and, you meet citizenship and residency requirements. However, some current and past students don’t know how much they owe and don’t understand how and when to repay the loan.

When do I have to repay my loan?

The first thing you need to understand is that all calculations are based on what is called your ‘repayment income’ as defined by the Australian Tax Office and is calculated using a particular formula.

You have to start repaying the HECS-HELP loan when your repayment income reaches the minimum threshold amount (called the HECS threshold or HELP threshold), which started at $46,620 for the 2020/21 financial year, and starts at $47,014 for the 2021/22 financial year. The amount you must repay is set as a percentage of repayment income.

The table below shows how much you’d have to pay based on various income amounts. The full set of HECS-HELP loan thresholds and rates for 2021/22 is available from the ATO.

HECS–HELP loan repayment rate examples

Rate Repayment amount
(per year)
2021/22 $ 50,000 1% $ 500
2021/22 $ 80,000 5% $ 4,000
2021/22 $ 105,000 7.5% $ 7,875

Source: Calculated using repayment rates from the ATO.

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 estimate a repayment amount based on salary, or you can make voluntary contributions. To do this, complete a new Tax File Number (TFN) declaration form, and you need to complete a new form each time you start a new job. It helps avoid bill shock at tax time, if these amounts haven’t been taken out throughout the year.

How do I know how much I have to repay?

The tax office 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 on myGov; however, the details may not be up to date. It is worth noting that the government may legislate changes to student loans and existing repayment arrangements from time to time.

student loan concept
Do you know how much you have to repay on a student loan or debt? Image: ITTIGallery/Shutterstock.com

Should I pay back my loan early?

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. As with any other debt, your HECS-HELP loan will be compounding over time, although this is still at a very low rate compared to most other forms of credit. While there is no interest payable on your HELP debt, indexation is applied in line with changes to cost of living. In 2021 the indexation factor is 0.6%.

Advantages to early repayment

Making voluntary contributions will definitely help pay down the loan faster. Any voluntary repayments will be a credit to your HELP balance. Although voluntary repayments for study and training support loans 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. You might benefit if a voluntary repayment is received before indexation applies, which happens on 1 June.

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, buy now pay later (BNPL), personal loan, home loan or any other debt usually has higher interest rates and compounds more quickly over time than your student loan. So, if your situation is that 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 that a bank will usually consider any HECS or HELP debt if you apply for a loan or mortgage – this may affect the loan amount offered by a bank.

Does it make more sense to pay my HECS early now as rates on savings are so low?

This all depends on your priorities but some of the factors to consider include:

  • Last year’s HECS-HELP was indexed at 1.8% and with the official cash rate sitting at a record low at the time of writing, savers are having to work hard to find a savings account that provides a healthy return.
  • Do your numbers – can you earn more than that amount (i.e the indexation rate) 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.

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 super, and you can withdraw some super savings to contribute to a home deposit.
  • Some banks offer higher short-term variable interest rates. 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 savings options available which may offer a better rate of return than the low bank rates currently on offer – both inside and outside of your super. 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.

Main image source: Rawpixel.com/Shutterstock.com

About Elizabeth Hatton

Elizabeth Hatton is a director and financial planner at Viva Financial Planning. She has worked in the financial services industry since 2008 and has a special interest in helping people with tax planning, and sustainable and ethical super and investments.

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This content was reviewed by Sub Editor Jacqueline Belesky as part of our fact-checking process.

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