The Higher Education Loan Program (HELP) is a government initiative designed to make tertiary education accessible for all Australian citizens. With the continual rise of education costs, HELP breaks down the financial barrier to allow more individuals to undertake professional and self development through formal education. Application for HELP is free, and the loan is used to pay for course fees. Repayments for your HELP debt is only required once you earn above the minimum threshold set by the ATO.
For the 2018-19 financial year, the minimum income that triggers repayment is $51,957 starting at 2%. This means that if you are earning below this figure, you don’t need to make any repayments towards your HELP debt. The higher your income, the more you’ll need to pay, up to a maximum of 8%.
When and how to make HELP debt repayments?
Repayments toward your HELP debt are made automatically through the tax system. When you start working, advise your employer that you have a HELP debt. Your employer will then deduct repayments from your wages. The repayment amount is worked out based on how much they are paying you.
After you’ve lodged your annual tax return, the final repayment amount will be adjusted if required. If you’ve overpaid the ATO through your deductions, you’ll receive a refund. If there’s a shortfall, then you’ll be notified to pay the outstanding balance. The ATO also accepts voluntary repayments at any time.
How is HELP debt different from other debts?
Unlike other loans, your HELP debt is interest-free. There’s no obligation to make repayments until your income reaches the minimum threshold and you’re not required to repay the debt by a certain time.
Although the loans are interest-free, it’s still indexed to inflation on 1 June each year. This means your debt will still compound to a larger sum over time. Making voluntary contributions will help to pay off your HELP debt faster and save you some money in the long run.
Should I pay off my HELP debt as soon as possible?
This will depend on whether you have any other debts and what type of debts they are. If you only have a HELP debt, then paying it off as soon as possible reduces the total debt amount.
Once your HELP debt is fully paid off, repayments are no longer deducted from your wages. This leaves more money for you in your take-home pay. Unfortunately, there’re no tax benefits or incentives for voluntary and early repayments.
If you have other debts like personal loans and credit card repayments, then the focus should be on clearing these first because they incur a higher interest rate. For individuals with tax-deductible debts, like an investment loan, it might be beneficial to pay down the HELP debt instead so the tax advantages are maintained. Your tax advisor will be able to recommend the most suitable action for your circumstance.
Tips to manage your HELP debt?
- Know exactly how much you owe. Check your HELP balance by contacting the ATO via phone or online at the myGov website.
- Find out if you’re eligible to cancel or reduce your HELP debt for studies that you didn’t complete. You’ll need to have a legitimate reason and evidence to support your claim.
- Let your employer know you have a HELP debt so they can make deductions from your wages.
- Don’t get overwhelmed. It can feel like a tremendous burden to come out of university with a large debt. Remember you are only required to make repayments when your income reaches the minimum threshold.
- Prepare a budget to get your finances in order. A budget will help you manage your cash flow and avoid unnecessary spending.
- If you’re planning to work overseas for 6 months or more, make sure you fill out your overseas travel notification via myGov. You’re required to lodge your worldwide income with the ATO and will be obligated to make repayments if your income meets the minimum threshold.
- Keep good records of all your work-related expenses to claim tax deductions.
Speak to Moiler for advice on how you can maximise your tax refund and manage your HELP debt.
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This document has been prepared by Moiler Partners, an Authorised Representative of Count Financial Limited ABN 19 001 974 625; AFSL 227232 (“Count”) a wholly-owned, non-guaranteed subsidiary of Commonwealth Bank of Australia ABN 48 123 123 124 and is for general information only. The presentation has been prepared without taking into account your personal objectives, financial situation or needs. You should assess whether the information is appropriate for your needs and consider talking to a Count Authorised Representative before making any investment decision. The relevant PDS should be considered before making a decision about any financial product. The information is provided as an information service only and does not constitute financial product advice and should not be relied upon as financial product advice. 8 July 2019.