If you have a HECS-HELP debt (or similar type of government education or training debt) chances are that you find that extra line on your pay slip, showing the extra amount withheld, a bit depressing! That’s how I used to feel before I was able to finish paying my debt off and I was relieved when I finally got rid of it.
Gough Whitlam’s Government made tertiary education free in 1974. It remained so until funding caused a problem for the Commonwealth in the late 1980s, before the Hawke Government implemented the HECS in 1989. There have been some reforms to the system since, but the premise remains the same: the federal government pays your university fees and you then have a HECS-HELP debt which is repaid through the tax system once your income reaches a certain level.
If your taxable income is above $54,126 for the 2016 tax year or $54,869 for 2017 you’ll be repaying some of your debt. At those income levels the repayment would be 4% of your income, but it increases incrementally up to 8% depending on your income. In the meantime, the amount of the debt is only increased by the indexation rate, which is currently 1.5%. I expect it’s the cheapest debt you might ever have!
While it can be frustrating, I still think that it’s not the worst thing in the world for someone fresh out of university to have along with a tertiary qualification. Those of us who are Gen-Y or Millennials can complain about our parents or grandparents having benefitted from free tertiary education, but we still don’t have it too rough. Elsewhere in the world student debt is a business and governments are far less generous.
There is also a benefit for making voluntary repayments of $500 or more towards your debt – you will receive a 5% discount. That means if you pay the minimum $500 your debt will reduce by $525. I took advantage of this discount recently. My debt would have been paid off through my tax return, so instead of that I paid it off with a voluntary repayment so I could get the discount, then lodged my tax return.
I have advised family, friends and clients to make use of the discount when their final payment is approaching, but the discount is about to be scrapped. From 1 January 2017 it will no longer be available. If you have:
- A HECS-HELP
- Trade support loan
- Student Start-up loan
- Student financial supplement loan
you might want to do some number crunching. It might be worthwhile paying off your debt before the end of the year to take advantage of the discount before it’s gone.
You can always contact Optima Partners on 6267 2200 to help you with any budgeting or planning that will help you understand your financial position and the cost and benefits of any course of action.
DANIEL CAUSERANO – SNR ACCOUNTANT