When do I have to pay my HECS back? All your questions answered

We learned this week that HECS debts are set for their biggest increase in decades. How do the debts work? Here's all you need to know.
When do I repay my HECS debt?

When do I have to pay my HECS back? Why is it about to increase? What can I do?

You might have seen HECS debts in the news this week. That’s because they’re set for their biggest increase in decades. It comes amid an ongoing cost of living crisis and has renewed calls for the Government to intervene.

Here’s everything you need to know.

How HECS works

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.

What is indexation?

Indexation is an update to the dollar amount of your loan to reflect today’s prices.

Why do that? Because the value of a dollar changes over time – think of grocery items that once cost a few cents but now cost several dollars, not because they are necessarily more expensive but because a dollar counts for less.

The Government updates the dollar amount of many of its loans and payments regularly to preserve their ‘real’ value.

Painful indexation coming

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. This week, we got confirmation another large increase is on its way, likely the largest in decades (although we don’t know the exact number yet).

For context, a $30,000 loan indexed by 5% would grow by $1,500.

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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