The MWL Guide to HECS Debt
HECS debt. It is a concept we have all heard about, but still many – including those who currently have a HECS debt – still don’t know exactly how it works. So whether you are a parent of a child about to head to university and accrue their first debt, a student who can feel their HECS debt looming above their studies, or a recent graduate wondering what the best way to shake the HECS monkey off their back is, read on with our guide to HECS debt and many of your questions will be answered.
What is HECS?
HECS-HELP is a form of student loan, available to students enrolled in Commonwealth supported places to pay for their university fees.
How does it work?
In short, the Australian government chalks up the money for your university fees which you are required to payback. The debt is interest-free (well, kind of). On the 1st of June every year, your HECS debt is indexed each year to reflect changes in the Consumer Price Index to represent its true value in line with the cost of living.
When do I have to start paying back my HECS debt?
There has been political discussion around lowering the repayment threshold. In the 2017/18 financial year, you would have been making repayments if your taxable income is $55,874 or higher.
The proposal to lower the threshold has passed the first stage last December and if it gets passed by the Senate before 30 June 2018, the new threshold will be implemented as of July 1, 2018.
For those who are teetering on the brink of the income threshold, it may be worth considering some strategic tax deductions for the year – speak to one of our expert accountants for help in this regard.
How much will I have to pay back?
The new HECS repayment rates and the current rates are compared below, with an explanation of what will change if the proposal gets passed the Senate.
Should I pay off my HECS debt early?
Whilst becoming debt free and making voluntary payments to pay off that HECS debt a little earlier is by no means a bad thing, we don’t necessarily believe it is the wisest choice. Let us explain.
The Australian government used to offer a 5% discount for any voluntary HECS-HELP repayments made above the required repayment conditions, to the value of $500 or more. Unfortunately, that was scrapped in January 2017. As a result, there is no financial incentive in paying off your student debt earlier than required.
That extra cash could be better used in a range of investment vehicles. Rather than using your extra let’s say, $2,000, to make a student debt repayment, why not invest it and earn a return on that money instead? Taking further education to increase your earning potential? Even put it towards a home deposit? As long as you are putting the money that would otherwise be spent on repaying your HECS-HELP debt to good use, and not wasting it away on frivolous goods, we feel there are much wiser choices to be made than repaying your student debt earlier than required.