What the HECS!

Bad news for students paying off their HECS/HELP loan with indexation set to increase this June.

The Higher Education Contribution Scheme / Higher Education Loan Program (HECS/HELP) has often had a low indexation rate. According to The Guardian, Australians currently owe a share of more than $68.7bn under the HECS/HELP program.

The core element of the scheme is that it provides interest-free loans for higher education, which are indexed in line with the consumer price index (CPI). Indexation is different to interest, whereby the value of the loan is adjusted to the cost of living each financial year.

If you have a HECS/HELP debt and are earning over $48,361 (2022/23 financial year), you are likely to have started paying it off. It’s also important to be aware of how inflation can affect your HECS/HELP payments.

The end of the 2022 financial year saw the indexation rate on HECS/HELP loans rise to 3.90% and is predicted to increase on the 1st of June 2023 to over 7%. It has been reported that this is the fastest growth since 1999. This change may add pressure on students with a HECS/HELP debt, as the dramatic rise in the indexation rate could substantially increase their loan amount.

What makes things more difficult lately is that wages typically haven't been keeping up with inflation. According to the Guardian “Even under the most conservative scenario, modelling suggests average HELP debt will increase by at least $1,700 when indexed on the 1st of June”. If you are considering making a voluntary contribution it needs to be done prior to the 1st of June if you are looking to avoid being indexed on the full loan amount.

How to make a voluntary HECS repayment.

If you are thinking of making an early voluntary repayment the best way is to login to ATO within MyGov to check your balance. You can see the amount owing and make a voluntary repayment via BPay or Credit Card. Note that if you are to do this your payment needs to arrive before the 1st of June otherwise the next indexation will be applied.

Thinking of buying a home? Wondering how this could this affect you?

Although the HECS/HELP loans do not directly affect your credit score they can affect your purchasing power and could potentially impact the amount that you can borrow.

There are options such as paying off your HECS/HELP Loan earlier and avoiding the indexation so you can potentially borrow a larger amount from a home loan provider. Another option would be to use your savings for a larger deposit and have a smaller loan which you could pay back alongside your HECS/HELP debt. If you would like to discuss your home loan options reach out to one of Gateway's lending specialists or discuss with your mortgage broker.

We are not able to offer financial advice which would be specific to your individual needs, but we hope reading this has helped give you the opportunity to make educated choices surrounding your finances.

*This information is general in nature, you should, before acting on it, consider your own circumstances and you should seek independent, professional financial advice before making any decision based on this information. Go to gatewaybank.com.au to view our full terms and conditions for all of our products and services. HECS considerations are general and based on present articles and predictions made in the media and may be subject to change. For the latest information, please check the ATO website. Gateway Bank is not a registered financial adviser under the Tax Agent Services Act 2009, and you should seek advice from a registered Mortgage Broker or financial adviser if you intend to rely on this information to satisfy the liabilities or obligations or claim entitlements that arise or could arise.