Understanding HECS and Tax
In 2013, about 1.3 million Australians enrolled in higher education. Over recent years, this number has increased dramatically in line with the rise in population. The 2011 census showed that about 36.6% (vs 32.6% in 2006) of 20-year-old adults attended tertiary institutions.
The most recent 2018 statistics demonstrated that more than 1.5 million are in universities. Many of these students have taken out a loan to pay for their university degrees. You may be among them. Figures show that about 2.7 million students have higher education debt. Some already finished their studies, but they have to continue making repayments.
While many students and their families cannot pay for their education upfront, some simply do not see the point in doing so. As a solution, they turn to the Higher Education Loan Program (or HELP), also known as HECS-HELP. A few years back, this program was called the Higher Education Contribution Scheme (HECS).
The tax office confirmed that the average student debt was $20,303 for 2016-17. This amount was $1000 more than the previous year. The reason behind the increase included the rising cost of degrees. Your student loan differs depending on what you currently study and your degree’s duration. For instance, if you take up medicine or law, you will have to pay longer than those with a science degree. More than 160,000 graduates in the previous year still owe over $50,000.
What is HECS?
As mentioned, HECS is now HELP. It is a loan that focuses on students attending university or any approved higher education provider. With this government program, you can pay for your studies if you are enrolled in a Commonwealth-supported place (CSP).
While HECS-HELP provides payments for higher education, it does not offer financial aid if you need accommodation. The program also does not cover the costs of your textbooks, laptops, and other essentials.
How does this loan work? The good news is that HECS is not the same as taking a loan from the bank. Remember that when you take out a loan, the traditional scheme is that you are required to pay it off as soon as you have borrowed the money.
HECS does not work that way. You will only have to pay it back once you have an income on a certain threshold. This certain amount is called the compulsory repayment threshold. Quite recently, this threshold lowered to $45,881 (previously at $51,957), which means you will need to pay for your student loan if your income is within the mentioned amount.
Your payment rate depends on how much you currently earn. It can vary from one to ten per cent based on your income. The table at StudyAssist.gov.au shows the amount you need to pay. One per cent repayment rate is for those with a salary of $45,881 to $52,973.
It does not mean that being a student exempts you from repaying your loan. Once your income reaches the mentioned level above, you should begin to pay off the HELP loan.
Another thing to remember is that all government student loans do not charge any interest. However, they are held at the consumer price index, which applies when the debt is over 11 months old. The indexing happens every year on June 1. For 2018-19, the rate was 1.8%.
What are the Eligibility Requirements?
If you are interested in getting a HECS loan, you should first know if you are eligible for the program. Your provider will evaluate if you are qualified for the loan. An essential requirement is that you should be studying in a Commonwealth supported place. A CSP is a type of enrolment where your study’s total cost is divided into two:
- The Australian government pays for a portion of the cost, called a subsidy.
- The student pays for the other portion, which is known as the student contribution amount.
Only Australian and New Zealand citizens can get a CSP. An exception is if you are a permanent visa holder who will study and stay in the country throughout the whole course.
The HECS-HELP loan is for Australian citizens who meet residency requirements, which include studying at least some parts of the course in the country. If you are a New Zealand Special Category visa holder, you can also get a loan. Permanent humanitarian visa holders who meet the residency requirements in New Zealand can also apply.
Another condition is that you should send the completed form for the Request for Commonwealth support and HECS-HELP to the provider on time. There are loan deadlines to know about, which are known as the census dates. They pertain to the last day of withdrawing from your course without paying any charges.
Finally, you can apply for the HECS-HELP loan if you are enrolled in all units or subjects during the census date. If you meet the requirements, but you have already borrowed up to your loan limit from this program, your application will not be approved.
What are the Benefits?
HECS-HELP works as a student discount and a loan. The government will pay for your course fees if you are among the eligible students of this program. You can pay for your course upfront with at least $500, and you can still use this scheme to get more discounts.
It is much easier to make repayments because students are not allowed to pay for it right away. The government will pay off the amount of the loan or provide a discount directly to the institution where you are studying. Your repayments will go straight through the tax system.
Perhaps the most significant benefit of getting a HECS loan is that you can borrow up to the combined limit. This way, you can pay your tuition fees with the inclusion of all FEE-HELP, VET FEE-HELP, and other loans incurred from the beginning of the year.
The current loan limit is set to $106,316 for the year 2020. However, if you will study dentistry, veterinary science, or medicine, the loan limit is $152,700.
You do not have to borrow the entire amount, which is known as the HELP balance. This balance is renewable, where your account’s available amount can be topped up through compulsory or voluntary repayments.
About HECS Repayments: Should You Pay in Advance?
A few years back, it is beneficial to pay for the loan in advance. However, times have changed. There are no longer incentives even if you pay off your student loan earlier than required. Additionally, the government has more strict rules now, especially targeting repayment conditions.
The Australian Taxation Office (ATO) is tasked to calculate the payments you have to make. The office will base your rate on your income. It includes not just any voluntary repayments but also compulsory ones for the year you received your notice of assessment.
Therefore, your debt kicks off right after the census date for the university course that you would like to get assistance for.
Some experts will say that indexation is not about increasing debts. It may be true, but be aware that wages are not rising. Even with inflation, it can denote that many people are unable to get ahead of their debt, including their remaining student loans.
Interestingly, Australians in their 30s still carry their student debt. With the indexation rate lower than interest rates, the recommended repayment method is to pay down the biggest debt first.
How Does HECS Impact Taxes?
Let us say that you took out a HELP loan, which will help you pay your tuition fees. Eventually, you will finish your degree with a $20,000 debt from the HECS-HELP program. You then land a full-time job where your salary is $55,000 yearly. Your income immediately tells you that you have to pay back your student loan.
Your repayment loan is two per cent based on your income. It means that two per cent of what you earn will go straight to your remaining debt. A specific amount will be taken out of your salary, along with your tax payments. Therefore, your repayments have amounted to $1,100 yearly or $42 every fortnight.
You should also be aware that your debt will continue to increase every year due to indexation.
If you take out another loan to purchase a car or a house, you will have to include your student debt when making repayments. Even if you work overseas, you still have to repay the HELP debt. Many banks will turn down your loan application because you still have an existing student loan. In other words, your borrowing capacity is lowered while your risk profile increases.
Before accessing a HELP loan, it is your responsibility to understand what it entails. You should also know about your repayment obligations. Changes can take place from time to time. Make sure that you are well aware of the modifications and how they can affect your loan, especially its repayments.
Transitioning to tertiary study is not easy. You should ensure that you have a smooth move by learning which qualifications and courses suit your requirements. You should also find a provider that offers HELP loans to figure out what financial assistance you are eligible for. Think about your career options, as well.
The transition can begin by getting a tax file number early. You are required to submit your TFN when you get a HECS-HELP loan. If you do not have it yet, you can send a Certificate of TFN Application by the census date. The fastest way for you to get a TFN is with Australia Post. Once you have the number, you should always keep it secure.
Your repayment income for your HELP loan is different from your taxable income. It will depend on various factors, including:
- Your current taxable income and your overall net investment losses
- Your super contributions
- Total fringe benefits amount on your PAYG
- All your exempt foreign employment income
The transition can begin by getting a tax file number early. You are required to submit your TFN when you get a HECS-HELP loan. If you do not have it yet, you can send a Certificate of TFN Application by the census date. The fastest way for you to get a TFN is with Australia Post. Once you have the number, you should always keep it secure.
Your repayment income for your HELP loan is different from your taxable income. It will depend on various factors, including:
Always check your debt balance. To do so, you can contact the ATO and provide the office with your TFN. You will usually have to verify your personal details first before you can get the information about your balance. Another way is to log in to myGov site and find the HECS-HELP balance from your online account statement.
HECS stays until you repay all your balances. You can pay for the debt through tax, either compulsory or voluntary repayments:
Types of HECS Repayments
HECS stays until you repay all your balances. You can pay for the debt through tax, either compulsory or voluntary repayments:
You need first to tell your employer that you have an outstanding HECS debt. When you sign the tax declaration form before you begin your job, tick the box that confirms your student loan.
Your employer will then withhold the tax from your salary automatically. It is to satisfy the estimated debt liability through your annual HELP Repayment Income (HRI). The withheld tax should be able to cover the repayment of your loan.
If your employer does withhold additional tax, it should only be based on the payments you receive from your employment. It is not right if your employer takes your other income, even if it is from the previous or other jobs you may have. This way, you can make top-up payments when you lodge your tax return to renew your HELP balance.
You are allowed to pay off your loan early or at any time you wish. You will first have to contact the ATO and send the payment through BPAY or your credit card. You can also visit ATO’s office to get more information about how you can make early repayments. If you wish to get help from the experts, you can contact TaxReturn.com.au. We will gladly assist you so that you can make repayments at the best time.
More importantly, we urge students and those with existing student loans to keep their receipts. This way, claiming tax deductions will become much easier when you have the proof for your claim. The professionals here at TaxReturn.com.au can help you keep track of your taxes and which ones you can claim. This way, you will know whether you can reduce your HELP Repayment Income and even minimise your compulsory repayments.
If the mentioned places do not have your TFN, the best thing to do now is to contact the ATO directly at 13 28 61.
Once you have your TFN you’re ready to work and be paid! This goes a long way to helping you sort your taxes easy and making your tax return simple, TaxReturn.com.au can help you get your tax return done fast.
