Australian expats warned on student debts

Australian graduates living overseas have been warned moving away doesn’t mean they can dodge their student loans, and the tax office intends to remind them.
The Australian Taxation Office announced on Tuesday it would contact people with student debt who leave or are already overseas in the coming months.
ATO assistant commissioner Karen Foat said it was easy to get caught up in the excitement of moving overseas and forget about one’s repayment obligations.
“Moving overseas does not cancel student loan debts and your repayment obligations do not change with your address. Current laws give us the power to pursue these debts overseas,” she said.
Expats with Higher Education Loan Program (HELP), Vocational Education & Training student loan (VSL) and Trade Support Loan (TSL) debts can expect to be contacted.
Ms Foat said it took an average of nine years for people to pay off HELP debts.
“But for Australians who travel overseas and don’t make any repayments, it takes significantly longer,” she said.
Under new rules, Australians with an income contingent loan travelling overseas need to notify the ATO of their new address and lodge an overseas travel notification.
From July 1, anybody earning over $45,881 a year had to start repaying their student loans after the government passed laws cutting the threshold from $55,000.
“Expats should know that once their income reaches the new threshold of $45,881 for 2019/20, they need to be making repayments, just like anyone living in Australia,” Ms Foat said.
As at 31 January, there are over 3.2 million Australians with outstanding student loan debts totalling more than $66 billion.

‘Repay debt for years’: loan changes to hit 136,000 students

More than 136,000 young Australians are soon to join the ranks of 617,000 former students who are repaying their Higher Education Loan Program (HELP) – formerly known as HECS debt – as the income threshold for repaying the debt is slashed to just $45,881.

The Coalition has dramatically cut the threshold for making repayments over the past three years in a bid to step up the recovery of outstanding student debts, which have soared from about $18 billion in 2009 to almost $62 billion in 2018.

Kate Clayton has a HELP debt of about $60,000, and will likely start repaying it next year when she expects to be working full-time.
Kate Clayton has a HELP debt of about $60,000, and will likely start repaying it next year when she expects to be working full-time.CREDIT:LUIS ENRIQUE

A year ago, the threshold for someone earning income from employment before having to make student debt repayments was cut to just under $52,000, from about $56,000 in the 2017-18.

It is not just graduates who will have to start paying back their student debts. Those still studying who earn enough to push them above the salary threshold will still be required to make repayments.

For many, especially those living independently in Sydney and Melbourne, that is going to put their finances under strain.

For many, especially those living independently in Sydney and Melbourne, that is going to put their finances under strain.

Kate Clayton, 22, is a Masters of International Relations student at the University of Melbourne who will be graduating in December. She’s worked throughout her degree and expects to be working full-time next year.

She expects to earn above the salary threshold and to have to start repaying her student debt of about $60,000.

Kate, who rents, is careful with every dollar of her spending. She hardly ever eats out and is a vegetarian because it is cheaper than eating meat.

While she is not complaining, she says her finances are going to continue to be tight for the foreseeable future.

“The lowering of the salary threshold for the repayment of my student debt has made me question whether to pursue a PhD in the future,” she says.

“I feel the need to seek full-time work, in order to get saving for a house deposit and to help me become more financially secure. I expect to be paying off my student debt for years,” Kate says.

Desiree Cai, national president of the National Union of Students, says new graduates are being given less time to build their financial security before they have to start repaying their HELP loan.

She points out that the lower HELP repayment threshold is not all that far away from the full-time minimum wage.

“There’s a lot of stress and worry for graduates on low incomes who might struggle to make ends meet,” she says.

A report by the Parliamentary Library shows the average amount of outstanding student debt in 2017-18 was $21,557, up from $20,303 in 2016-17 and from just over $10,000 in 2006.

The number of people with a HELP debt in 2017-18 was 2.87 million, up from 2.66 million in 2016-17 and 1.37 million in 2008-09.

In March 2018, then minister for education and training in the Turnbull government, Simon Birmingham, said cuts to the threshold were necessary to ensure “our world-leading HELP system is sustainable into the future”.

He said that, under the old system, about a quarter of the debt was never expected to be repaid and the rate of increase in the debt was “unsustainable”.

Under the way that HELP repayment is structured, the higher the taxable income, the higher the percentage of that income is deducted by the Australian Tax Office to repay the debt.

For those earning between $45,881 and $52,973 during 2019-20, the repayment rate will be 1 per cent of salary. That means those falling in this income bracket will pay roughly $10 a week off their student debt.

Between $52,974 and $56,151, the repayment is 2 per cent of income and rising in 0.5 percentage point increments up the taxable income scale.

At $134,573, repayments hit more than 10 per cent of income. That is a significant increase for those on higher incomes.

In the current financial year, those earning $107,214 and more repaid 8 per cent of their income.

The debt is increased each year by the rate of inflation.

Grattan Institute higher education program director Andrew Norton says because of the way the repayments schedule will change on July 1, most people earning between $60,000 and $95,000 will actually be repaying a smaller portion of their income than they do now.

“Overall, I think requiring people on lower income to repay has been a reasonable response by government to the problem,” he says.

Norton says a major reason for the growth in the typical HELP loan size is that more people are completing post-graduate studies.

You can use our tax interactive to find out the percentage of workers in your profession and tax bracket that have a HECS debt:

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.