Rising Tide Blog

Is HECS just a gateway to a lifetime of debt?

Posted by Matt Hale

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For many young Australians, HECS is their first foray in to the world of debt.  There has been quite a lot of commentary around HECS over the past few years parents experienced when they were young.  The argument being that young people today are disadvantaged because not only are we faced with gastronomic house prices and a rising cost of living we are also invariable forced to begin our working life already saddled with debt, unlike the baby boomer generation who benefited from free university.

Regardless of these points, the fact is that HECS is the current system we have to contend with so it’s worth understanding how it works!

Here’s a quick breakdown:

What is HECS-HELP?

  • HECS-HELP is both a loan and discount scheme for students. It provides those who are eligible with
    • Funds to pay their student contribution amounts; OR
    • A 10% discount on upfront payments including and exceeding $500
      • (Note: The 10% discount aspect will be removed as of January 2017)
  • Fortunately, HECS-HELP loans aren’t charged interest. However, debt amounts are indexed each year to reflect changes in the Consumer Price Index (CPI) to ensure amounts maintain their real value. Indexing takes place on June 1 each year, and is applied to amounts that have remained unpaid for more than 11 months.

How much will HECS-HELP cost you?

  • You tertiary debt must be paid back once you earn above a particular threshold amount. Repayment income is calculated from the following components of your tax return:
    • Taxable income.
    • Reportable fringe benefits (reported on your payment summary).
    • Total net investment loss (incl. net rental loss).
    • Reportable super contributions.
    • Exempt foreign employment income amounts.
  • Basically, the amount you repay each year is a percentage of your income – so your required repayment amount increases as your income increases. Repayment rates for 2016-17 are shown below:
2016-2017 Repayment threshold Repayment % rate
Below $54,869 Nil
$54,869 – $61,119 4.0%
$61,120 – $67,368 4.5%
$67,369 – $70,909 5.0%
$70,910 – $76,222 5.5%
$76,223 – $82,550 6.0%
$82,551 – $86,894 6.5%
$86,895 – $95,626 7.0%
$95,627 – $101,899 7.5%
$101,900 and above 8.0%

Table sourced from: www.studyassist.gov.au/sites/studyassist

How to repay your HECS-HELP debt

  1. Compulsory repayments
    • These are made through the income tax system. As shown above, the ATO will calculate your compulsory repayment for the year and include it on your income tax notice of assessment.
  1. Voluntary repayments
    • These repayments are in addition to compulsory repayments, and can be made to the ATO at any time via BPAY or direct credit. If you make a voluntary repayment of $500 or more, you will receive a bonus of 5% of this voluntary repayment amount (that is, your account will be credited with an additional 5% of the value of your payment). Note: the bonus will be removed on January 1st 2017.

Claimable expenses to keep in mind for tax time:

The following self-education expenses are allowable tax deductions

  • Tuition fees, including fees payable under FEE-HELP

(FEE-HELP is a loan for eligible fee-paying students enrolled at an eligible higher education provider or Open Universities of Australia)

  • Tuition fees, including fees payable under VET FEE-HELP

(VET FEE-HELP is a loan for eligible fee-paying students doing vocational education and training (VET) accredited courses with an appropriate VET provider)

  • Self-education expenses paid with your OS-HELP loan

(OS-HELP is a loan that helps students meet airfares, accommodation and other travel expenses while undertaking some of their study overseas)

  • Textbooks & stationary.
  • Photocopying/computer expenses.
  • Student fees.
  • Accommodation and meals – where the course requirements require you to be away from home for one or more nights.
  • Running expenses – heating, cooling, lighting.
  • Allowable travel expenses.

Some final tips:

  • Ensure your employer is aware of your HECS-HELP situation.
  • Keep track of all work-related expenses (do this through receipts/invoices) and ensure all of your tax deductions are considered, tracked and included in your tax return Melbourne. Doing this may reduce your compulsory repayment amount.
  • If you believe you can’t afford the repayments, complete a Deferring your compulsory HELP, HECS or Financial Supplement repayment form (available on the ATO website). If successful, the related compulsory repayments may be deferred until a later date.