Why your HECS debt will increase by 7.1% in June

The Australian Tax Office has confirmed there will be a HECS debt increase of 7.1% - the largest increase in decades. Why is it going up?
HECS debt increase

The Australian Tax Office has confirmed student loans will be increased by 7.1%, with a HECS debt increase to come into effect from June 1. 

It applies to debts from the Higher Education Loan Program (HELP, commonly called ‘HECS debts’) and a few other loans including the VET Student Loan.

Loan amounts are updated once a year in a process called ‘indexation’. This is the largest increase in decades.

What is indexation?

Indexation is an update to the dollar amount of your loan to reflect today’s prices. The Government updates the dollar amount of many of its loans and payments regularly to preserve their ‘real’ value.

The large increase this year reflects current high inflation (price rises). Inflation was 7% in the year from March 2022 to March 2023.

How does HECS work?

In most cases, Australian university students have to pay for some or all of their degree.

However, Australia allows students to defer payment by offering them an ‘income-contingent’ loan – that’s a loan from the government that you only have to pay back if you earn above a certain amount.

This loan is usually called HECS-HELP or FEE-HELP depending on your course type. There are similar loans for some VET courses (called VET Study Loans or VSL).

When do I have to pay my HECS back?

If you have a student loan and you earn less than $48,361 this financial year, you won’t have to pay any of your HECS back this year. If you earn more than that, you’ll have to pay between 1-10% of your income back. The income levels are updated every year.

The Government does not charge interest on your loan and any outstanding HECS debt is forgiven when you die. However, there is one catch that is relevant this week: the loans get indexed.

Does your HECS debt increase every year?

That indexation can be particularly painful when prices are rising fast, as they have been for the last year or so.

Last financial year, student loans were indexed (increased) by 3.9%, an unusually large amount.

For context, a $30,000 loan indexed by 7.1% would grow by $2,130.

When do I have to pay my HECS back?

You can choose to pay back extra at any time if you wish. You can also apply to the Australian Tax Office (ATO) to defer repayment on financial hardship grounds.

The ATO notes that indexation takes effect on 1 June and that anyone who wants to pay extra before indexation should do so before this date.

The question of whether early repayment is beneficial depends on an individual’s unique financial situation.

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