If you’re one of the thousands of students who need to or have taken out a student loan and are still unsure of how it all works and when you have to start paying your student debt back, this short report will set you in the right direction.
What Is HECS HELP?
HECS / HELP is a low-interest loan from the Commonwealth government. If you receive a HECS or HELP loan, the government pays your student fees directly to the institution on your behalf, and once you earn a certain amount of income, you will need to make compulsory payments back through the tax system. The more you earn, the more you’ll need to pay back. You can also make voluntary repayments at any time.
Pro Tax Tip: A HECS / HELP loan will cover your tuition fees only but will not cover costs such as accommodation, laptops or text books.
What Is The Criteria?
Not everyone can apply for a HECS / HELP loan. There is certain eligibility criteria that you’ll need to meet. You must:
- Study at a Commonwealth support institute
- Be an Australian citizen and meet residency requirements
- Be a New Zealand Special Category Visa (SCV) holder or permanent humanitarian visa holder and meet residency requirements
- Submit the Request for Commonwealth Support and HECS / HELP form to your provider by the census date
- Be enrolled in each unit / subject at your educational provider by the census date
- Have an available HELP balance
Pro Tax Tip: The census date is the date in the study term when enrolments are finalised. After the date, you’ll be liable to pay back your debt, even if you do withdraw from the course.
How Does It Work?
HECS / HELP loans don’t incur interest like a bank or other financial institute will charge, and doesn’t have a deadline for paying the amount back. The amounts are indexed up in line with the cost of living. You will need to make repayments only after you earn a certain amount until the loan is paid off.
How Do You Pay it Back?
The amount you pay back is calculated based on how much you earn. The current 2021-22 repayment income thresholds and rates are:
Don’t forget to let your employer know about your loan, which should be done in writing. They’ll take the required payment out of your wage and withhold it before your wage is paid to you. The Australian Taxation Office (ATO) will calculate your compulsory repayment based on your income when you lodge your tax return out of your withholding amount. For the self-employed, you’ll be required to make payments on your loan when you lodge your tax return if you exceed the thresholds.
You’ll need to complete a new Tax File Number (TFN) declaration form each time you start a new job. If you work two jobs, each employer will only need to withhold your HECS / HELP debt on the amount that they pay to you. If your combined income exceeds the minimum threshold you might have to pay more come tax time.
Pro Tax Tip: The threshold levels change each year and will be updated on the ATO website. If you cross the minimum threshold while studying, you’ll still be required to start paying back your loan.
Making Voluntary Repayments
While everyone is different, you may consider paying off your student loans faster by making voluntary payments. Direct payments can be made directly to the ATO by BPAY and credit card. Your ITP Accounting Professional can help set up your voluntary payments and advise if this is an avenue you should take.
Your HECS / HELP debt may affect how much you can borrow if saving for a house. When you apply for a home loan, your lending provider will look at your gross income, expenses, liabilities and debts.
Your Repayment Income
Your HECS / HELP repayable income is different than your taxable income. Your Repayable Income (RI) includes:
- Your taxable income (not including any assessable First Home Super Saver (FHSS) amounts
- Reportable fringe benefits
- Total net investment loss (including net rental losses)
- Reportable super contributions
- Exempt foreign employment income amounts
Pro Tax Tip: If you go bankrupt your HECS / HELP debt does not disappear. It is reinstated once you start earning the minimum threshold amount. Neither can your HECS / HELP debt be cancelled.
Your HECS / HELP debt will need to be repaid up until death. A trustee or executor of your estate will need to make payments if required up until the date of death. The rest of the HECS / HELP debt is cancelled upon death.
You’ll be able to minimise your tax and payable HECS / HELP by claiming all of your eligible tax deductions and reducing your Repayment Income. Don’t forget to keep all of your receipts and financial information when you claim tax deductions. Make sure the deductions you claim are only-work related and that you’re out of pocket for your expenses. An ITP Accounting Professional will walk you through everything you need to know about your HECS / HELP debt, from ensuring you pay the right amount of tax to making sure your claim all of your tax deductions so you don’t pay more tax than you have to. Phone 1800 367 487 and chat with a Professional today.