How The Heck Does HECS Work?

Whether you’re a school leaver considering their university options, a parent helping their child navigate the application process, or a mature age student returning to study, understanding HECS is important. How much will a degree cost? When do repayments start? How much will be owed? Let’s answer your question: how the heck does HECS work?

By breaking down the key components of HECS and the options available, this article will help demystify Australia’s student loan scheme. Readers will come away with a firm grasp of eligibility requirements, repayment obligations, and how to plan their path through higher education with HECS/HELP in mind.

Where, How and Why did HECS Start?

HECS was introduced in 1989 to reintroduce tuition fees for university students after they had been abolished in 1974. It is an income contingent loan scheme where students can defer payment for their tuition fees until after they finish university and are earning above a minimum income threshold.

When students enroll in university, they can choose to pay for their tuition upfront or take out a HECS loan. If they take the loan, they do not have to make any payments while studying. Once they start working after graduation, compulsory repayments kick in when their income is above a certain threshold (around $51,550 currently). Repayments are set at a percentage of their income and automatically deducted from their pay by their employer.

The key features of HECS are:

  • Income contingent repayment – repayments are based on income level, not a fixed schedule. This avoids payment difficulties.
  • Payments are deferred until graduates are earning a minimum income. This promotes access and affordability.
  • Repayments are collected through the tax system. This makes collection efficient and keeps costs low.
  • There are no penalties for early repayment or overseas repayment. This provides flexibility.
  • Loans are indexed to inflation, so the real value remains constant.


What’s a HECS-HELP repayment rate?

When you finish your university degree, you may have taken out a HECS-HELP loan to help cover your tuition fees. This government loan is a big help while you’re studying. After graduation though, it’s important to understand how loan repayments work.

The repayment rate is the percentage of your income that goes towards paying off your HECS-HELP debt each year, once you start earning above a certain amount. The good news is, this only kicks in when you land a job and your salary is high enough.

Repayment rates increase gradually as your pay goes up. For example, in 2023-24, if you earn between $51,550 – $59,518, the rate is 1% of your income. Between $59,519 – $63,089 it’s 2%. The maximum rate of 10% applies to incomes over $151,201.

Each year, the repayment thresholds and rates adjust for inflation. This means the amounts stay in line with cost of living increases. Your total income from all jobs is considered too. Then your employer simply deducts the repayment from your pay on the government’s behalf.

Even after making repayments, the total debt amount can still rise a small amount each year due to indexation. But overall, the system is designed to make loan repayments very manageable. Just be aware of how it works so there are no surprises down the track.

How is this different to indexation?

The HECS increase rate is the amount your HECS debt goes up each year while you’re studying. It’s linked to inflation – so as prices rise in the economy, your HECS debt increases too. This is so the value of your debt doesn’t go down over time.

Indexation is different. This happens after you finish studying and start repaying your loan. Indexation is where your remaining HECS debt goes up annually in line with inflation. So even if you’re making repayments, your balance can still increase a bit each year.

The key difference is the HECS increase rate applies while studying, and indexation applies after graduating once repayments kick in. The bad news is both rates in the past were generally quite small, however, in 2023 because of inflation the indexation rate is almost double. For example, in 2023 the HECS indexation rate is 7.1%, up from 3.9% in 2022. It’s helpful to understand how inflation impacts your loan over time.

READ: The Types of Student Loans Available in Australia

What are the HECS repayment rates in 2023-24?

Here’s what the 2023-24 financial year’s repayment rates are, according to income: 

Below $51,550:Nil
$51,550 — $59,518:1.0%
$59,519 — $63,089:2.0%
$63,090 — $66,875:2.5%
$66,876 — $70,888:3.0%
$70,889 — $75,140:3.5%
$75,141 — $79,649:4.0%
$79,650 — $84,429:4.5%
$84,430 — $89,494:5.0%
$89,495 — $94,865:5.5%
$94,866 — $100,557:6.0%
$100,558 — $106,590:6.5%
$106,591 — $112,985:7.0%
$112,986 — $119,764:7.5%
$119,765 — $126,950:8.0%
$126,951 — $134,568:8.5%
$134,569 — $142,642:9.0%
$142,643 — $151,200:9.5%
$151,201 and above:10%

How Do You Pay Back Your HECS debt?

Don’t stress, paying back your HECS debt is pretty straightforward. Here’s a quick rundown:

Once you start earning over a certain amount (around $51,550 from 2023-24 per year), your employer will automatically start taking payments out of your pay. The crucial thing is to make sure you inform your employer that you have a HECS debt so they know to deduct the additional tax. This money goes directly to paying off your HECS debt. The more you earn, the more you’ll be required to pay back.

Pro Tax Tip: You must advise your employer you have a student debt as they’re obligated to pay it back through the PAYG system and will be logged against your name as being repaid.

Low Family Income

If you have a low family income, you may be eligible for some tax relief through things like a reduced Medicare levy or not having to pay it at all.

In these situations, you also won’t have to make compulsory repayments on your HECS debt that year. This is helpful if money is tight.

The ATO looks at your combined income with your spouse or partner, as well as any dependants you support. If you qualify for the tax relief due to low family income, you won’t see compulsory HECS amounts deducted from your pay.

It’s a good safety net to know about. Just be aware your debt will still be indexed each year, even if no compulsory repayments are being made in that period.

You can also make extra voluntary repayments anytime if you want to pay it off faster. Just log into your MyGov account and make a payment, tell your tax agent or tell your employer to take out more from your wage.

The ATO will track your remaining debt and let you know each year on your tax return how much is left.

So, in summary – it comes out of your pay automatically once you hit the income threshold, but you can always pay extra. The ATO handles it all, you just have to give them your tax return info each year.

How Is Your HECS Repayment Rate Calculated?

When it’s time to start repaying your HECS debt, the Australian Taxation Office (ATO) needs to know your income to work out how much you’ll repay each year. They look at a few things from your tax return and payment summaries.

The main one is your taxable income – things like your salary, wages, business or investment income. They don’t include any money you took out of your super under the First Home Super Saver scheme though.

They’ll also add in any reportable fringe benefits you received from work, like a company car. And any total net losses from investments like rental properties.

Any contributions your employer made to your super are also counted.

Overseas employment income that’s exempt from Australian tax isn’t included either.

By adding up these different types of income, the ATO gets a full picture of how much you earned to work out your repayment rate. It’s all pretty straightforward and they do the calculations for you in the background.

We hope you found this information on HECS repayments helpful. A tax accountant can provide advice tailored specifically to your individual situation. Speaking with one may help you reduce your HECS debt and lower your tax obligations over time. While the basics are covered here, a professional can optimize your options.