When is HECS payable? How does it work?

Studying, HECS, contracts, dating, full-time, tax, graduating… Damn! All the responsibilities of adult life—can be so hard, especially since it always involves money. While it’s never easy managing money, having it makes your life a lot easier, no doubt. I’m not saying happier, just more comfortable! For example, what if you have to choose between going to uni and going to work so that you could pay your bills?

Many students are struggling financially and, unless you are on a scholarship or relying on the bank of mum and dad, getting a loan from the government is the only way to afford a tertiary education.

‍

What Is HECS?

It is often known as the "best student loan you'll ever get". Well, for me, I call it a student discount because it is almost an interest-free loan. Don’t get excited yet! There are loan indexation rates you need to be aware of:

• It is added to your debt on the 1st of June each year.

• Indexation is applied if the loan remained unpaid for more than 11 months.
  

Apart from that, the Australian government has made the HECS-HELP loan fairly accessible to cover some of the cost of studying, they only help Commonwealth supported students. For example, “if” you are an eligible student, the Australian Government (through the HECS-HELP scheme) will pay your course fees for you or pay the amount of the loan directly to your education provider.

So, the good news for students who seeks HECS debt help are:

• It allows you to start your degree or graduate without the stress of having to pay upfront.

• You can either voluntarily pay it back or have paid out of your income towards your debt over time.  

Eligibility

There is no such thing as a free lunch, especially when it comes to having or getting a Commonwealth supported loan. Brace yourself, the eligibility requirements for a HECS-HELP are coming.

Ok… here we go….

For a HECS-HELP loan, you must 1) be studying in a Commonwealth supported place, 2) from one of the following citizenship status categories: Australian Citizen, New Zealand Special, Category Visa, Permanent Humanitarian Visa Holder, 3) submit the Request for Commonwealth support and HECS-HELP  form to your university/provider by the census date, 4) be enrolled in each module at your university/approved provider by the census date, and 5) not exceed the HELP loan borrow limit.

I warned you! Anyways If you need further help, contact your tertiary education provider.  

‍

When Do I Need To Start Repaying My HECS Debt?

This is the tough bit, isn’t it? Often, some current and past students (I used to be one of them) don’t know how much they owe and don’t understand how and when to repay the loan. That sucks.

So, let’s start with “when” to repay the HECS-HELP debts….

You can start repaying once your Help Repayment Income (HRI) is above the minimum threshold amount. A  compulsory repayment of at least 1% of your income is calculated in your income tax assessment (called the HECS threshold or HELP threshold), which for 2019-2020 is $45,881.

In short, you need to start repaying once your taxable income reaches a certain level. Also, be mindful that the HRI thresholds change every year. To learn more about the 2019-2020 repayment threshold rates, visit the ATO site here.  

‍

How does it work?

Say for example that your gross salary is $50,000 and you have some work-related reductions totalling $500. Your income after tax would be $49,500. Assuming there are no other income items, this figure of $49,500 then becomes our repayment income for the table above. With $49,500 repayment income, we fall into the 1st tier of the table where our repayment rate is 1%. A common myth is that this means you repay 1% of your HECS Debt balance, but this is not the case. It is in fact 1% repayment of your repayment income. So, in our example, we are required to repay 1% of $49,500, which is a total repayment of $495. Thus, this repayment amount will be deducted from your HECS balance.

While you can calculate your HECS repayment for the financial year manually, it can get quite tricky, and of course, time-consuming. You can check the ATO site and calculate your HECS repayment plan automatically online.

‍

‍How Do I Know How Much HECS Debt To Repay?

Honestly, you don’t have to do anything here. The ATO office will keep track of your HECS-HELP debt repayment balance. All you need to do is to call them and verify your details correctly, and once approved; you will get your balance straight away.

How To Repay My HECS Debt?

There are two types of repayment – compulsory repayments and voluntary repayments.

Compulsory repayments are completed by your employer withholding additional tax from each pay to cover your estimated HECS-HELP debt liability based on the income they “pay” you. For this, you need to submit a “tax declaration form” to your employer with the correct personal details.

So, if you are starting a new job, inform your employer that you have a HECS-HELP debt. Even if you don’t have one, you can get it done by filling out the tax declaration form before starting work. However, if you are already working and you haven’t notified your employer, then you can re-submit another tax declaration form.

Voluntary repayments

If you are earning decent money and can save, you may want to consider making voluntary repayments to get rid of that loan sized chip off your shoulder.  

You can do it two ways: visit the ATO website and make a BPay or credit card transfer towards your HECS debt. Otherwise, you can contact your accountant for more information about how to make repayments and the best time to do so.

‍

Does Paying Off Your HECS Early Help At Tax Time?

Unfortunately, long gone are the lucky days. Now, there are no tax benefits associated with early repayment of HELP debt. Yes. Discounts on up-front contributions to the education provider and voluntary payments of $500 or more to HELP debt were discontinued from January 2017.

DEAL BREAKER: But remember one thing, we are talking about “debt” here.

TIP: Generally, this means, no matter how beneficial loaning can be in combating financial challenges, paying them off as early as possible is almost always smart. After that, you will feel something like this……...

‍

Disclaimer: The author is not a financial advisor and the information provided is general in nature and was prepared for information purposes only. This article should not be considered to constitute financial advice. Accordingly, reliance should not be placed on this article as the basis for making an investment, financial or other decision. This information does not take into account your investment objectives, particular needs or financial situation.