Every student: “Should I be paying off HECS early?“…
Every Accountant: “Sometimes!”… read on for more about early HECS repayments
You’re probably thinking, why on earth would someone want to pay off their HECS debt faster than they need to? Is it really worth repaying your HECS/HELP debt early or is your money better spent elsewhere? It all comes down to your personal circumstances — your income, your expenses, your goals and aspirations — and what is most important to you.
In this blog we explore the advantages of making early HECS debt repayments and what factors to consider before doing so. But first, let’s quickly go over the basics.
What is HECS?
HECS are student loans provided by the Australian government and are accessible by students who are enrolled in higher education and meet all the requirements. HECS eligibility requirements can include; must be studying in a Commonwealth support institution and you meet citizenship and residency requirements.
This means if you’re an eligible student, the government pays the amount of the loan directly to your educational institution. As you study more, semester by semester, you can elect to pay up front or pay via HECS. If you pay via HECS your student loan, or HECS balance will increase.
What are the advantages of paying your HECS debt early?
Just like any other form of debt, your HECS student loan will incur a charge for money over time, known as indexing, although it may be at a lower rate compared to other forms of credit.
Although there is no interest payable on your HECS debt, an indexation is applied based on changes to the cost of living on June 1st. The most recent HECS Indexation rate in 2024 was 4.7%.
You will have to start repaying your HECS debt when your repayment income reaches the minimum HECS repayment threshold amount, which currently sits at $54,435 for the 2024-2025 financial year. However, making early payments can HELP make paying off your HECS debt in Australia easier and faster.
Start saving for more important things
Of course, the biggest advantage of paying off your HECS student loan early is that your take home pay increases! This means you can start saving for more important things in life a lot sooner. Once you have paid off your HECS either outside of your tax return or via lodging your tax return, you’ll need to let your employer know and complete a new employee declaration.
What factors should you consider before making early HECS repayments?
- What are your priorities — maybe you want to travel, maybe you’re saving for a car or a home loan deposit — what’s more important to you at this point in your life and career.
- Do you have any other forms of debt — most other types of loans, such as car loans, credit cards, home loans and personal loans usually have higher interest rates and compound much quicker over time. So, it would make sense to prioritise paying these loans off first.
- Other investments — can you earn more money than the amount indexation applied on your HECS debt by investing your money elsewhere?
- Credit rating — although paying off higher interest loans is better for your credit rating, the bank will take into account your HECS debt or HELP debt when applying for a home loan. This will impact how much you will be able to borrow as your HECS debt reduces your take home pay which the bank review for servicing a mortgage.
Voluntary HECS repayments
You can make voluntary HECS repayments via BPay or Credit Card. You can obtain the details for repaying your HECS debt from the ATO 13 28 65 or by speaking to your accountant. The best time to make a voluntary repayment is prior to indexing each year. We’d recommend making a payment or full repayment in May. This is prior to indexation in June which is a once-a-year event.
Are voluntary HECS repayments Tax Deductible?
Unfortunately, voluntary HECS repayments are not tax deductible. A voluntary repayment can impact your tax refund however if you repay the student loan in full. If your employer has been withholding additional tax to cover your HECS loan, you will receive this back at tax time if you voluntarily repay your HECS prior to loading your tax return.
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