Long gone are the days of free university under Gough Whitlam’s education reforms in the 1970s and 80s and for soon-to-be graduates across Australia, the reality of having to pay back their HECS-HELP loan is just a few months away. Depending on the degree you have studied, your loan will most likely be upwards of $20,000. So how much will you be repaying and when do you start?
Well if after graduation you land a full-time job, you will need to earn more than $54,869 for compulsory repayments to be taken out of your wage. However, after 1 July 2018, this will rise to a minimum threshold amount of $55,874. Where you exceed the minimum threshold, at least 4% of your Help Repayment Income (HRI) will be repaid and this rate increases in tandem with your income as per the below tables.
So what is your HRI income and how does this differ from your taxable income? In simple terms, your HRI is calculated by adding your taxable income with any reportable fringe benefits, exempt foreign employment income, total net investment losses and reportable superannuation contributions.
Now, it’s important to do the math yourself and not just rely on your employer when it comes to taking out enough tax to cover your HECS-HELP repayment obligations. Depending on their systems and processes, what they take out might not be enough and often, it can state in employee policies that the onus is on you to seek professional advice. It can be advantageous to speak to a Tax Agent in advance so you don’t get lumped with a tax bill when lodging your tax return.
Whether you meet the minimum repayment threshold or not, it is your responsibility to advise your employer that you have a HECS-HELP debt; this is done by ticking the relevant box on your Tax Declaration Form. In fact, if you are employed at the time you commence or while you are undertaking study, you should update this information with your employer by providing an updated Tax Declaration Form.
If you are in a position to pay off your HECS-HELP debt sooner, you can opt to make voluntary payments in addition to any compulsory repayments taken out of your wage. This can be done through the Australian Taxation Office using BPAY or a credit/debit card.
So what about interest? Although there is no real interest charged on HECS-HELP loans, your debt will be indexed annually to reflect changes in the Consumer Price Index to maintain its real value. Each year the ATO makes the indexation adjustment on 1 June and this applies to the portion of your debt that has been unpaid for 11 months or more.
Now if you’re planning on returning to study later down the track, pending reforms could mean that changes will apply to the repayment of new HECS-HELP loans. The 2017 Higher Education Reform Package is currently sitting with parliament for consideration. Keep up-to-date with the latest news via the Study Assist website.
For more information about HECS-HELP loans, please contact your Accountant or call us on (07) 4632 1966. Alternatively, visit the ATO’s website.