Many Australian students in higher education programs such as university use HECS-HELP to pay for their studies. HECS-HELP is a non-interest loan provided from the Australian Government that is subject to indexation. With HECS-HELP indexation set to increase to 7.1%, students country wide will be affected.
If you are a higher education student with HECS-HELP debt, this blog is for you. In this article we will be answering what is indexation, what is HECS-HELP indexation, and when should you pay down your HECS-HELP debt.
What is indexation?
Indexation is the process of adjusting the price, wage, or value of something based on the changes of a specific measure such as inflation. Indexation is used to negate the effects of a specific measure like inflation, so the value of the item remains the same in reference to the value of money year to year.
For example, a company may have a wage indexation policy that increases your wage to keep up with the cost of living.
Indexation and HECS-HELP
Now we know what indexation is, but what is HECS-HELP indexation? HECS-HELP loans do not incur interest, although they are indexed against inflation. The indexation is applied on June 1 every year.
This year’s indexation rate is predicted to be around 7.1%. For a student with a $25,000 HECS-HELP loan, that is $1,775 that will be added on come June. The debts are only indexed if they are older than 11 months old.
Although the indexation rate is particularly high this year, the rates in the previous years have been significantly lower. Below are the indexation rates by year and the expected loan balance increase on a $25,000 loan.
- 2023: 7.1% ($1,775)
- 2022: 3.9% ($975)
- 2021: 0.6% ($150)
- 2020: 1.8% ($450)
- 2019: 1.8% ($450)
2023 is an outlier to the usual year due to high inflation this year. If a student had a loan of $25,000 in 2023, their loan balance would increase to $26,775. Similarly, a student with a $25,000 loan back in 2019 would have only seen their balance increase to $25,450.
Indexation is generally seen as a good thing as students can save more money than if they paid interest on their loan. Problems arise in high inflationary times like we’re seeing this year that see students potentially paying thousands more on their student loans than we’re used to seeing.
Paying down your HECS-HELP
The indexation rate, the rate the loan balance increases, and the repayment rate, the rate that you repay the loan balance, are two different things that should not be confused. Repayment rates are based on your income. The repayment rate is the per cent of income you will need to contribute for your HECS-HELP loan. The HECS repayment rates are detailed below:
|2022-2023 Repayment threshold||Repayment % rate|
|$48,361 – $55,836||1.0%|
|$55,837 – $59,186||2.0%|
|$59,187 – $62,738||2.5%|
|$62,739 – $66,502||3.0%|
|$66,503 – $70,492||3.5%|
|$70,493 – $74,722||4.0%|
|$74,723 – $79,206||4.5%|
|$79,207 – $83,958||5.0%|
|$83,959 – $88,996||5.5%|
|$88,997 – $94,336||6.0%|
|$94,337 – $99,996||6.5%|
|$99,997 – $105,996||7.0%|
|$105,997 – $112,355||7.5%|
|$112,356 – $119,097||8.0%|
|$119,098 – $126,243||8.5%|
|$126,244 – $133,818||9.0%|
|$133,819 – $141,847||9.5%|
|$141,848 and above||10.0%|
For example, if you are making $85,000 per year, you will be required to pay 5.5% of your income to pay down your HECS-HELP debt. That means you are required to pay $4,675 for the year. If you would like to calculate your own HECS-HELP debt repayments, check out our HECS calculator.
If you earn below the $48,361 threshold, you are not required to pay down any of the student loan. Unless the Australian Government changes its rules, you may never be required to pay down your student debt if you continue to earn $48,361 per year. HECS-HELP debt is not passed on to your estate. That means when you pass away your debt end with you!
Tactics for reducing your HECS-HELP debt
Making a payment in May each year to reduce the value of the HECS debt that is being indexed on June 1 will save you money.
Should you pay down your HECS-HELP debt before 1 June? The truth is it depends on your own situation. Your student debt is also repaid by the ATO when completing your tax return in July. By paying before June 1st, you can avoid paying the indexed inflation. But it means you’ll be paying down the HECS debt again in July when you lodge your tax return.
What debts should I repay first?
Paying down debts such as credit cards or personal loans may be a better option than paying down your student loans due to the higher interest rates that a financial institution will charge you on this type of debt. If you have financial goals like purchasing a home, paying down your student debts may be less of a priority. A person with more disposable income and no need for money in the short term may want to repay more of their HECS-HELP debt to reduce the effects of indexation.
If you would like to learn how you can pay your HECS-HELP debt down quickly, click here.
HECS-HELP system is an excellent system for providing student debt to assist people with their studies. Catch is that it does have to be repaid at some stage! It is repaid in line with how much you earn meaning the more you earn, the more you repay. Each year the debt is indexed on the 1st of June based on inflation.
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