HECS-HELP Debt And How Rising Indexation Rates Will Affect You

If you’ve attended university, chances are you’re familiar with the HECS-HELP program. This Australian Government initiative ensures that Australian citizens or permanent humanitarian visa holders can pursue university education without significant financial barriers. The application process is straightforward, making it accessible to many. With that being said, it’s noteworthy to look into how you’ll be paying off this chunk of accumulated funds once the degree has been attained.

Repayment of a HECS-HELP loan is income-contingent, meaning repayments are only required once your income reaches a certain threshold. For the 2023-2024 income year, this threshold is $51,550. Repayments start at 1% of your income and increase with higher earnings. You can also make voluntary repayments to the Australian Taxation Office (ATO) at any time, even if you haven’t reached the threshold. These voluntary repayments can help reduce your debt faster and save on interest. Each year when you lodge your tax return, the ATO will calculate your HECS-HELP repayment based on your income and if you have a debt, it will be added to your tax bill.

Another important thing to note for our digital nomads out there – if you move overseas, you are still required to repay your HECS-HELP debt. You’ll have to declare your worldwide income to the ATO and make repayments accordingly.

One lesser-known aspect of HECS debt is indexation. This adjusts the value of the debt annually to reflect changes in the cost of living, measured by the Consumer Price Index (CPI). Indexation is applied on the first of June each year to the outstanding balance of the loan for payments older than 11 months. 

This year, indexation increased by a significant 7.1% due to high inflation. While 7.1% might not sound like much, it translates to $1,775 on a $25,000 debt. This is the highest rate in over ten years, compared to 3.9% just two years ago, indicating potential future increases.

So then, what should you do if you have HECS debt?

If you're not earning at the compulsory repayment threshold and have other debts with higher interest rates (such as credit cards, car loans, etc), prioritize paying those off first. However, if your HECS-HELP debt is one of your only or your only debt, consider making voluntary repayments to pay it off faster and avoid higher indexation rates.

If your HECS debt is starting to feel like a burden that you feel like you can’t tackle alone, consider chatting with a financial advisor. Michaela at FRE.DM Wealth is well-versed in the post-university HECS debt blues and can help you become debt-free in attainable steps. Reach out today to learn how to avoid rising HECS debt through high indexation rates.