HECS-HELP debt collectively refers to various types of educational loans in Australia, encompassing:
- HECS-HELP
- FEE-HELP
- VET FEE-HELP
- OS-HELP
- SA-HELP
- VET Student Loans
Eligible students regularly utilise these interest-free loans, through which the Australian Government pays the course fees for their educational programs with a higher education provider.
Once you have finished studying, landed your coveted degree, and are ready to start earning in the workforce, you will pass a minimum repayment threshold and need to start paying the HECS-HELP loan back.
It’s easy to leave the required amount to be calculated through your income tax assessment once a year based on your loan limit, but if you want to get ahead and remove that debt from your ledger, there are strategies for faster HECs repayment.
In this helpful guide, we’ll provide some core information on HECS-HELP debt, repayment income levels, and voluntary repayment methods you can apply to clear your debt faster after completing a higher education loan program.
Who Can Qualify for HECS-HELP?
Eligibility for HECS-HELP is based on certain criteria:
- Enrollment in a Commonwealth-supported place
- You must be either an Australian citizen, a New Zealand Special Category Visa holder who fulfils long-term residency criteria, or a holder of a permanent humanitarian visa
- Ensure you are enrolled in each of your university’s units by the census date
- Satisfy the specific residency requirements associated with HECS-HELP
- It’s necessary to submit a correctly filled Commonwealth support and HECS-HELP form to your university by the census date or an earlier set administrative date if applicable
When Will I Need to Begin HECS Debt Repayment?
The repayment of your HECS (or HELP) debt is directly tied to your income.
Once you hit a particular income threshold, compulsory repayments of your HELP debt will kick in. For the 2022-23 period, the minimum Repayment Income (RI) threshold for initiating loan repayments was set by the Australian Tax Office (ATO) at $48,361, increasing to $51,550 for the 2023-24 fiscal year.
When your income surpasses these thresholds, a compulsory repayment, starting at a minimum of 1% of your income, is incorporated into your income tax assessment. Without taking the time to review the breakdown of your tax return, it might just look like additional tax withheld.
The ATO has access to this information, so you don’t need to worry about tracking or calculating anything. Simply notify your employer that you have a HELP debt.
Why Should I Pay Off Accumulated HELP Debt Faster?
Avoid Growing Indexation
Your HECS-HELP debt won’t accumulate interest on a monthly basis like credit cards or personal loans, but due to indexation, the balance will still grow annually.
With the present indexation rate at 7.1%, you might consider paying off your student loan sooner. To illustrate, at a 7.1% indexation rate, a debt of $50,000 would increase by a sizeable $3,550.
Achieving Financial Liberation
Paying off your HECS debt sooner can grant a sense of financial liberation. You can remove the need for continuous repayments, freeing up resources for other financial objectives, such as saving for a home or launching a business.
Enhancing Credit Score
Early repayment of your HECS debt indicates prudent financial management, which can favourably influence your credit score. A robust credit rating is advantageous when seeking various forms of credit or applying for loans.
Strategies to Pay Off HECS-HELP Debt Faster
Dealing with your HECS debt needn’t be a daunting process.
To help simplify things, let’s explore some effective strategies for accelerating the clearing of student debt.
Remember, the key is to design a repayment plan that suits your financial situation and future plans and stick to it.
Increase the Amount of Your Voluntary Repayments
Boosting your voluntary repayments is the most effective way to slash your HECS debt. These repayments are over and above your compulsory contributions and are not refundable, so bear in mind that managing your budget wisely is non-negotiable. You don’t want your ambitious repayment plan to jeopardise your everyday expenses and obligations.
Think of it as contributing more to your savings account each month. Over time, even a small increase can make a huge difference.
Make a conscious effort to either boost your income or trim down some non-essential costs, then redirect those funds toward your HECS debt. You must balance maintaining a cozy lifestyle and speeding up your debt payment process.
Lower Taxable Income to Free Up More Funds for Voluntary Payments
Lowering your taxable income might sound counterintuitive, but there is logic here. Once you complete your tax file number declaration, your employers will start to withhold additional tax and send it to the Australian Taxation Office to cover your outstanding HECS-HELP debt.
If you have other forms of income, however, such as business income or profits from investments, lowering your taxable income can create additional financial capacity that allows you to make voluntary HECS payments.
Several legitimate methods exist to lower your taxable income, primarily claiming all deductions and expenses related to earning your income. Before making any significant changes, consult a specialist tax agent for personalised advice.
Key Takeaways
- Repayment of HECS Debt begins when your income exceeds a certain threshold set by the Australian Government.
- Formulating and implementing strategies to pay off your HECS Debt as quickly as possible can help you gain financial freedom.
- One effective strategy is to make larger voluntary payments, reducing the amount you pay over time and speeding up your debt clearance.
- You could also focus on lowering your taxable income to free up additional money for voluntary repayments.
Contact KNS Accountants and Business Advisors today for more information about handling your HECS-HELP loan, as well as your wider tax and financial position.