The cost of living is rising and that means that people who have a Higher Education Loan Program (HELP) debt should brace themselves for increases.
And with an important deadline looming, there's a lot of talk about HECS-HELP debts at the moment.
If you've got a higher education debt, here's what you need to know.
What does HECS-HELP stand for?
HELP is the overarching federal government program that offers loans to students.
For many people, their uni course will be what's called a Commonwealth Supported Place (CSP).
For CSP's the federal government covers some of the student's uni fees and the student pays the rest — that's what's known as the "student contribution amount".
Student's who aren't enrolled in a CSP are enrolled in what's called a "fee-paying place".
Under HELP, there are four types of loans:
- HECS-HELP: used for the student contribution amount in a CSP
- FEE-HELP: used for tuition in a fee-paying place
- SA-HELP: used to pay student services and amenities fee
- OS-HELP: used to pay a students' expenses if they're enrolled in a CSP and want to study overseas
How do you see your HECS-HELP debt?
You can check it online at the ATO website or through the myGov app.
But you need to create a myGov account and link it to the ATO.
If you're looking for your total in the myGov app, tap the Services icon and tap on the "Australian Taxation Office" link in the menu.
Once you're in the ATO menu, scroll down to the "Loan accounts" section and tap the "view" button.
The balance is what you still owe.
Do you pay interest on a HECS-HELP debt?
Technically no, but that doesn't mean the debt doesn't increase over time.
HECS-HELP debts are interest free.
But the debt is indexed to keep up with inflation, which ultimately adds a bit more money to the overall debt each year.
Inflation is another term for the Consumer Price Index (CPI) — which is a set of figures released by the Australian Bureau of Statistics (ABS) every three months to track the cost of living.
When will HECS-HELP debts increase?
Indexation is applied to HECS-HELP debts on June 1 each year.
What is the 2022-23 HECS-HELP indexation rate?
It's forecast to be roughly 7 per cent, but we don't know the exact figure yet.
That's because we're still waiting on the ABS to release the figures for the March quarter.
Those figures will be published on April 26.
By then, we'll be able to calculate the exact figure using the formula (more on that below).
Then the indexation rate will be officially announced by the ATO Commissioner via the Commonwealth Gazette.
What were the previous HECS-HELP indexation rates?
The lowest indexation rate we've seen in the past 10 years was in 2021, when it was just 0.6 per cent.
The highest was last year's, at 3.9 per cent.
Here's a look back at the past 10 years:
Year |
Indexation rate |
|---|---|
2022 |
3.9 per cent |
2021 |
0.6 per cent |
2020 |
1.8 per cent |
2019 |
1.8 per cent |
2018 |
1.9 per cent |
2017 |
1.5 per cent |
2016 |
1.5 per cent |
2015 |
2.1 per cent |
2014 |
2.6 per cent |
2013 |
2.0 per cent |
Is HECS-HELP still a 'good debt'?
We asked two financial advisors for their takes on this:
- Michael Radalj from Your Private Advisers in NSW
- Jacie Taylor from Periapt Advisory in South Australia
In a nutshell, they say this rise is going to sting, but getting a good education is still worth it in the long run.
"As a financial advisor, our role is to help people do what they want to do in life," Mr Radalj says.
He reckons that, while debt is something people will have to address, if you want to go to uni than that's what you should do.
"A career is more important," he says.
Both pointed out that typically a university degree means amplifying your earning potential.
The latest employee earnings figures from the ABS show that median earnings increase with an employee's level of education.
But keep in mind that this is just the average figure, so there could be some people without qualifications with higher paying jobs than people with higher qualifications.
Check out the graph:
"Investment debt is considered a good debt because interest is tax deductible," Ms Taylor says.
"It's something that's going to appreciate in value — that's generally good."
And while it's not a tangible asset such as property or gold bullion, you still get something for you money when it comes to higher education.
"The asset you have is your education," she says.
"It's a good debt in that sense."
She also points out that HECS/HELP is "one of the few debts that will die with you".
So if you were to die, your student debt won't be a burden to those you leave behind.
And Ms Taylor says it's important for people with student loans to remember that this indexation rise wasn't expected.
"You can't know it beforehand," she says.
"It's not something you beat yourself up for not seeing."
How do you pay off your HECS-HELP debt?
There are two ways:
- PAYGW
- Voluntary payments
Once you earn more than a certain amount — currently, the figure is $48,361 — your employer should be deducting a percentage of your income from your pay cheque to go towards your debt.
This is called pay as you go withholding (PAYGW).
The PAYGW amounts are applied to your compulsory repayment for that financial year's income tax return once it has been calculated — which is after you file your tax return.
That means that, if you were to look at your HECS-HELP tally right now, you'll see that your PAYGW payments from this financial year wouldn't have been applied yet.
But you can also make extra voluntary payments.
They credited directly against the loan balance once it's been processed by the ATO.
Which means they are processed more quickly.
You can make voluntary payments online — with options including BPAY and debit card — as well as via phone or mail.
But you will need your unique payment reference number (PRN).
You can find that by using the ATO portal in your myGov app.
Tap the "menu" button in the top left corner then: Tax > Accounts > Summary.
Should I make voluntary repayments to my HECS-HELP debt?
That really depends on your personal circumstances.
Ms Taylor gave her opinion, but it's generalised.
So it's really important to consider your own situation carefully and consult a professional for tailored advice about your individual circumstances.
"The person who is looking at paying off HECS-HELP debts needs to look at all the other thing they could be doing with money instead," she says.
"What are you giving up in order to make extra repayments?"
She says that could range from having a bigger house deposit, a holiday or making extra payments into their super.
And, using super contributions as an example, she says sometimes it can be more beneficial to do that than pay off their HECS/HELP debt early.
"Previously it was not a good idea to pay it off, unless you've got a whole lot of spare money."
What's the deadline for making a voluntary payment?
You can make a voluntary payment at any time.
But if you want to get in before the next round of indexation is applied, time is running out.
"If an individual wishes to pay off their loan balance in full prior to indexation being applied, it needs to be done with sufficient time to allow the payment to fully process through the banking systems to reach the ATO accounts before midnight, May 31," an ATO spokesperson says.
"Any voluntary repayment received prior to May 31 will reduce the balance used for indexation calculation."
The ATO also says it's best to make voluntary repayments before you lodge your tax return or worldwide income.
That's because, if you lodge your tax return or worldwide income before that voluntary repayment is credited to your account, a compulsory repayment or overseas levy might still be taken out of your return.
If I pay my debt off before June 1, will I avoid indexation?
Only if you pay it off in full via a voluntary repayment.
But because they're processed at the time of your tax return, indexation will be applied to your balance before this financial year's PAYGW instalments are deducted.
That's because indexation applies on June 1.
Tax returns for 2022-23 can't be filed until after the end of the financial year on July 1 — a month later.
Can I defer compulsory repayments?
Yes, but you'll have to apply for it.
"If a compulsory repayment will cause significant financial hardship, an individual can apply for deferment of the assessing of the compulsory repayment from the ATO," the spokesperson says.
"It is important to remember that a deferment of compulsory repayment or overseas levy does not change the HELP balance owed.
"That balance will remain, and be subject to indexation on June 1."
How is the indexation rate calculated?
It's not based on just the March CPI figures — it's more complicated than that.
It's actually based on the All Groups CPI index number, weighted across the eight capital cities.
Here's the formula:
the sum of the index number for the March quarter for the current year and the index numbers for the three immediately preceding quarters
divided by
the sum of the index number for the March quarter for the previous year and the index numbers for the three immediately preceding quarters
So, last year, that worked out to be:
Mar22+Dec21+Sep21+Jun21
divided by
Mar21+Dec20+Sep20+Jun20
=
123.9 + 121.3 + 119.7 + 118.8
divided by
117.9 + 117.2 + 116.2 + 114.4
=
483.7
divided by
465.7
=
1.039 (to three decimal places)
That meant the indexation factor was 1.039, meaning the effective percentage increase was 3.9 per cent.
We're still missing one figure to complete the formula for 2022-23, which so far is:
March 2023 index + 130.8 + 128.4 + 126.1
divided by
123.9 + 121.3 + 119.7 + 118.8
=
(March 2023 index + 385.3)
divided by
483.7
What will happen to HECS-HELP debts in the future?
With the predicted 7 per cent indexation rate, some have called for the government to change the way it deals with student debts.
Mr Radalj thinks the current arrangement is unfair for young people.
"It's just not right," he says.
"All it's meant to be doing is assisting the government in funding education, but not to make a profit from it."
But neither he nor Ms Taylor can see the government changing the way loans are indexed in the near future.
"This particular year is going to hurt a bit," she says.
"It may just be that this year becomes a blip."
She says that, while the CPI is high at the moment, doesn't mean it won't go back down.
"Everything in history suggests that it will."
