Paying back your HELP or HECS student debt, explained

An illustration shows a ball with "student debt" written on it chained to a person's leg to depict paying back HECS debt.

IMAGEWhile it might feel like a burden, taking on debt to study often pays off in the long run. But it’s important to understand the nature of the debt.(ABC Life: Luke Tribe)

So, buckle up: we’re going to go deep into world of the Higher Education Loan Program (HELP), which some of you might know by its former name, HECS. We’ll cover vocational education and training (VET) student loans too, which are part of the HELP program.

If you’ve been putting this off for a while, here’s your opportunity to tick off some life admin.

How student debt works in Australia

If you’re an eligible student in an eligible university course or vocational training program, you can access the Higher Education Loan Program (if you’re at university) or the VET student loan program (if you’re at TAFE or another vocational training provider).

When it comes to eligibility, there are a number of rules, but generally speaking you need to be an Australian citizen, hold a New Zealand special category visa or hold a permanent humanitarian visa. The StudyAssist website has a handy tool if you’re not sure whether you qualify.

HELP works like this:

  • Your tuition fees will be charged to your student debt immediately after the census date: a point in the study term when enrolments are finalised. (For university courses, it’s usually a few weeks into the semester.) If you’re enrolled in subject or course after the census date, you’ll rack up a debt for it — even if you don’t finish it (say you withdraw) or get your qualification.
  • You’re required to start paying back your debt once you earn above a certain amount. (For this year, it’s $51,957 before tax.) The more you earn, the more you’re required to pay back. You can also make voluntary repayments at any time. We’ll expand on this in detail soon.
  • When you earn enough to make repayments, they’ll be made through the tax system. If you’re an employee, some of your pay will be withheld by your employer to cover your repayments. (You don’t actually pay anything off until you file your tax return.) If you’re self-employed, you pay once you’ve filed your tax return.

Wondering how much debt you have? You can find out online (using the ATO service on MyGov) or by ringing the tax office on 13 28 61.

The difference between interest and indexation

While no-one likes debt, studying is usually a great investment because it can help you earn more income. University graduates, for instance, can earn more than $800,000 more than school leavers over a lifetime.

On top of that, there are two factors that make HELP debt more attractive than other loans. The first is that, unlike a loan for a car or a house, HELP debt doesn’t attract interest.

In other words, you don’t pay the government for the privilege of borrowing — which is a very good thing, says chartered accountant and independent financial adviser Stephanie O’Connor.

HELP debt is, however, “indexed to inflation”. Confused? It simply means that the debt is raised each year in line with the cost of living. Last year, the indexation rate was 1.9 per cent.

The second reason HELP debt is better than regular debt is that there’s no deadline to repay it. While you can’t avoid paying it once you earn enough money, you’re not forced to pay off the balance in a rush.

“If you owe the tax office money, you certainly don’t get those terms. The tax office will charge you interest, and they’ll want to collect the debt very quickly.”

How much will you repay?

The amount you have to repay is calculated as a portion of your income before tax. Here’s the repayment rates for the year to June 30, 2019.

SourceAAP:www.abc.net.au

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