HECS HELP Debt Repayments
HECS HELP Debt Repayments
HECS-HELP is a student loan that you can repay after getting a job. If you come under the HECS-HELP scheme, the Australian government will pay your course fees. All you need to do is prove your eligibility. The government will pay your loan amount directly to the educational institution.
You can repay your loan once you reach a specific income amount according to the Australian taxation system. The threshold for the 2019-20 financial year is $45,881. You can also make voluntary repayments whenever you want, regardless of your income. That means if you already have sufficient bank balance, you can repay the loan instead of waiting to reach the minimum repayment amount after getting a job.
You need to apply for HELP before the census date of the respective university course. At MyBorrowing, we can help you with the application process right from the first day.
Eligibility criteria for HECS-HELP
You need to fulfill the following eligibility criteria to qualify for HECS-HELP:
- Be an Australian citizen
- Study in a Commonwealth supported institution
- Enroll in the respective units at your university before the census date
- Hold a New Zealand Special Category visa that fulfills the long-term residency requirements or hold a permanent humanitarian visa
- Meet the residency requirements relevant for HECS-HELP
- Submit an application to your university to receive Commonwealth support before the census date
Repayment process of HECS-HELP loans
You can start repaying your HECS-HELP loan once your HRI (Help Repayment Income) is more than the minimum threshold repayment amount. That means, once your taxable income surpasses the minimum repayment threshold, you can start repaying your loan every month. The Australian government adjusts the Help Repayment Income threshold every year.
According to the 2019-2020 financial year, the minimum Help Repayment Income threshold is $45,881. Once your income exceeds this amount, you become eligible for a compulsory repayment scheme. As per this scheme, you need to pay at least 1% of your total income as part of the repayment program. The minimum repayment percentage will increase as your income increases. Here’s the compulsory minimum repayment percentage for the financial year 2019-20 for different income groups.
- Below $45,881 – 0%
- $45,881 to $52,973 – 1%
- $52,974 – $56,151 – 2%
- $56,152 – $59,521 – 2.5%
- $59,522 – $63,092 – 3%
- $63,093 – $66,877 – 3.5%
- $66,878 – $70,890 – 4%
- $70,891 – $75,144 – 4.5%
- $75,145 – $79,652 – 5%
- $79,653 – $84,432 – 5.5%
- $84,433 – $89,498 – 6%
- $89,499 – $94,868 – 6.5%
- $94,869 – $100,560 – 7%
- $100,561 – $106,593 – 7.5%
- $106,594 – $112,989 – 8%
- $112,990 – $119,769 – 8.5%
- $119,770 – $126,955 – 9%
- $126,956 – $134,572 – 9.5%
- $134,573 and above – 10%
Understanding Help Repayment Income
Many people think that their taxable income is the same as their repayment income. It is not. Here’s how the Australian government calculates your help repayment income:
- It calculates your total taxable income for a financial year.
- This amount gets added to your net investment losses.
- The resulting amount gets added to reportable fringe benefit amounts, if any. The reportable fringe benefit amounts are usually available on your PAYG payment summary.
- The government will then add any reportable super contributions.
- And finally, it will add exempted foreign employment income from the ongoing accounting year.
Checking HECS-HELP debt balance
There are two ways to check your HECS-HELP debt balance:
- Call 13 28 61 to get in touch with the ATO. Provide your TFN. The TFN works as your ID to the ATO. They can verify your personal details in a flash and inform you about your HECS-HELP debt balance.
- Alternatively, you can visit the myGov site to know your HECS-HELP debt balance. Here also you need to provide your TFN to link your account to the ATO. Once your account gets linked, you can view your debt balance whenever you want.
Repaying your HECS-HELP debt using the taxation system
1. Compulsory repayments
Companies usually ask their employees to fill out a Tax Declaration Form before providing the official appointment letter. You need to inform your employer about your HECS-HELP debt on this form. Make sure you tick the box that asks whether you are on a HECS-HELP debt or not. This will allow your employer to withhold additional taxes from your salary so that you can repay your HECS-HELP debt balance.
The additional tax that your employer withholds is the same amount indicated according to the percentage based on your annual help repayment income. The amount of money you save from additional taxes goes into paying the loan balance.
Remember, your employer will only withhold additional taxes based on the salary they provide. They will not consider incomes from other sources, such as your investments or incomes from previous jobs. Therefore, you may need to make a small amount of top-up payment after filing your tax return.
2. Voluntary repayments
You can also make voluntary repayments once you finish your course in the university. The ATO accepts payments both by credit cards and BPAY. Visit your nearest H&R Block Office or the ATO to know more about when and how you can repay your debt balance voluntarily.
Frequently asked questions about HECS-HELP repayment
1. Should I pay off my debt as early as possible?
Ideally, you should pay off your HECS-HELP loan as quickly as possible. The reason for that is very simple: the interest rate adds to a substantial amount if compounded for more than 5 years. Some students take out a loan that they can repay in 10 years. While it may be financially helpful for them now, they also need to consider the future value of the interest they are paying or will pay in the 10-year period.
You may argue that a HECS debt is not real debt because the repayment money gets deducted from your salary instead of an effective tax. That means you don’t consider it as a personal loan. Although this is a logical argument, you should also see the flip side to it. This type of loan is usually indexed to inflation. It means that even though the loan amount is small, it eventually compounds at a rate of 1 or 2% per annum, depending on your annual income.
2. What happens if your employer is still taking payments for the HECS-HELP debt balance?
Sometimes you pay off your HECS-HELP debt in time but you later discover that your employer is still taking out contributions from your salary. The amount may seem small but over the years, it will add to a significant sum. In such cases, you should immediately notify your employer by providing a Withhold Declaration. The Withhold Declaration form will consist of various questions. The most crucial of them is question number six. We can guide you to fill out this form if you come to know that your employer is deducting contributions toward HECS-HELP repayment from your annual income.
Question number six asks whether you want to continue your HECS-HELP contributions. Make sure you select NO. In addition to the Withhold Declaration form, you can also provide a copy of your HECS-HELP account balance. You can link your account with the ATO using your TFN to get your repayment completion details.
3. Is my HECS-HELP repayment tax deductible?
Repayment of loans from HECS-HELP schemes is not considered as deductible expenses. According to Taxation Ruling TR 98/9, deductions for self-education are allowable only for two instances:
- If you have already incurred the expense by enrolling in the institution to improve your knowledge or skill.
- If the self-education expense is most likely to increase your income from what you earn now.
4. What if I die before repaying my HECS-HELP debt?
The HECS-HELP scheme aims to help eligible students to pay their educational expenses with discounts and loans. The repayment of this debt depends entirely on your income instead of a specific repayment period. Ultimately, your HECS debt gets written off if you die.
Your trustee needs to file outstanding tax returns on your behalf after your death. If your income already comes under the minimum repayment threshold, your trustee will need to repay the amount out of your estate for that financial year. For example, if your minimum repayment amount for the year amounts to $300, your trustee will have to pay that amount before the end of the accounting year. Once he/she repays the amount, the Australian government will write off your balance debt. Neither your trustee nor your family will be liable to repay the rest of the debt balance.
5. Will my HECS-HELP debt affect my credit score?
Thousands of students want to take out loans to buy houses or cars even when they are repaying their HECS-HELP debt. And most of them have one question in common: whether their HECS-HELP debt will affect their credit score.
When you apply for a home or car loan, the financial institution will ask for your previous liabilities and credit history. That’s where your HECS-HELP debt can come in handy. If you decide to defer your HECS-HELP payment, you will not have to start with the repayment program until your taxable income becomes $45,881 or greater. Once you reach this threshold, you can start repaying the loan in parts.
But a HECS-HELP reduces your borrowing power. And yes, it will affect your credit score if you can’t repay the loan on time. However, you can take out a loan cleverly. For example, you can request your credit file before applying for a home or car loan. This will help to understand your financial position. You can then decide the approximate amount you should borrow.
Alternatively, you can make voluntary repayments for your HECS-HELP debt before applying for another loan. This will also improve your credit history. There is one thing that every financial institution wants to see when they check credit histories: whether the applicant repays the loan within the specified time or not. Therefore, if you have already repaid the loan or repaying the amount without failures, then you have more chances of getting your loan application approved.
Now that you know how HECS-HELP debt repayments work, make sure you start repaying as soon as your annual taxable income reaches the minimum repayment threshold. You can contact us for any queries related to your HECS-HELP loan.
Our doors are always open whenever you want to apply for a HECS-HELP loan or want to prepare a repayment schedule. Call us at 1800 825 805 to set up an appointment as soon as possible.