The looming financial new year heralds an unwelcome extra cost for thousands of people who currently have HECS-HELP debts.
This is because every unpaid debt is going to automatically increase when it's indexed on June 1.
In previous years, the HECS indexation rate was relatively modest.
But thanks to soaring inflation, this year's indexation rate is set to hit more than 3 million Australians hard.
Here's what you need to know.
What is indexation?
Indexation means that the price of something is changed in correspondence with an external factor.
In this case, the price of something is your student debt and the external factor is the Consumer Price Index (CPI).
Each year your student loans increase based off the CPI percentage — which is a set of figures released by the Australian Bureau of Statistics (ABS) every three months to track the cost of living.
How much is my HECS-HELP loan going to go up by?
This year, your HECS-HELP debt will increase by 7.1 per cent after indexation.
Below is a calculator that will tell you how much your HECS-HELP debt will increase by.
It's automatically set to $25,000 to represent a typical HECS-HELP debt.
Plug in your debt balance to see what it might look like post-indexation.
When is HECS-HELP indexed?
June 1.
How can I pay off my HECS-HELP debt?
There are two ways:
- Voluntary
- Compulsory
Voluntary payments can be made at any time through the myGov portal.
Compulsory payments are taken from your wages once you earn over the $48,361 threshold.
These payments aren't deducted from your overall debt until after you've submitted your tax return.
If I voluntarily pay off my whole loan, do I avoid the indexation?
Only if you pay your entire debt off.
Indexation will apply to whatever you're still owing by June 1.
So, when do I have to pay my HECS back by?
Well, technically the cut off date for repayments is May 31 — this coming Wednesday.
However, when asked by ABC News, the Australian Tax Office (ATO) recommended making payments four days before the cut-off date to make sure you avoid extra indexation because of how long it can take for the payment to be processed.
So, if you are making a voluntary payment to avoid indexation – lodge your payment by May 25.
The ATO assured us it's not expecting a backlog of payments in the lead up to indexation.
However, they expressed the importance of providing the correct Payment Reference Number (PRN) when making the payment, which is visible when viewing your account in ATO Online Services.
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.
What happens to my compulsory payments if I pay off my whole loan?
Compulsory loan payments are garnished from your salary and held by your employer.
When you lodge your tax return, the gathered monies are applied to your loan balance and your debt reduces.
If you are in the fortunate position to be able to pay off your entire debt before tax time then don't worry, you will get most of if not all of your compulsory payments back, according to the ATO.
"If an individual pays their loan account in full prior to lodging their tax return, their compulsory repayment will be nil, and as part of the normal Tax Return processes, any balance of PAYG amounts remaining, after applying against the tax and other assessment liabilities, is refunded," an ATO spokesperson told ABC News
How much HECS-HELP debt do Australians have?
The 2023/24 budget papers reported a number of things about the current state of student loans in Australia, including:
- As of 2023, the fair value of HELP debt is at $48.5 billion
- Over 3 million Australians have some form of HELP debt as of June 2022
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As at the end of June 2022, the average time taken to repay HELP debts was 9.6 years.
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The government expects $55,444,000 in HELP debt to be payed in the 23/24 financial year
What did the budget include for HECS-HELP?
If you're looking for some future reprieve from high indexation payments in the budget you're out of luck.
The 23/24 budget papers did outline $87.8 million in funding over the next five years towards the HELP system but this will be used to improve the administration process and increase data security.
Federal Treasurer Jim Chalmers also indicated that there are no plans to alter HELP indexation at a press conference in April.
"This indexation that happens around the middle of the year, every year, happens regardless of who is in office … That is how the system works," he said.
