Culture

Everything You Need To Know About Today’s HECS Debt Changes

If you've got a student debt, you should read this.

by Sam Langford  1 July 2019
hecs debt

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Happy Financial New Year, folks — here’s your grim reminder that as of today, you’re going to need to start paying back your HECS debt sooner.

On July 1, the government’s plan to reduce the HECS-HELP repayment threshold finally kicked in. That means that going forward, you’ll need to start repaying your HECS-HELP debt once you earn more than $45,881 a year.

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Previously, you only had to start repaying your debt once you earned more than $51,957, so it’s a pretty significant drop (just two years ago, the threshold was $55,874). You’ve got the Coalition government to thank for that — the changes were announced back when Malcolm Turnbull was still Prime Minister, but they only come into effect today.

To make matters worse, today is also the day that penalty rates get cut, and politicians get a pay rise. A lot is going on here, but right now let’s break down exactly what’s happening with HECS debt, and how it’s going to affect you going forward.

What Is The New HECS Threshold?

Before today, you didn’t need to start paying back your HECS debt until you earned more than $51,957 a year. As of today, you’ll need to start paying it back once you earn more than $45,881 in a financial year.

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The amount of money people in different income brackets will need to pay back is also changing this year. For instance, people in the $51,957 – $57,729 income bracket previously faced a repayment rate of two percent, but as of today, the income brackets are changing. Going forward, anyone earning between $52,974 and $56,151 will still be paying back their HECS debt at a rate of two percent, but those who earn between $56,152 and $59,521 will need to repay their loans at a rate of 2.5 percent.

If you’re wondering “2.5 percent of what?”, you’re not alone. As we’ve explained before, HECS repayments are very similar to paying tax, but not quite the same. In Australia, you only start paying income tax once you earn more than $18,200 a year. The income tax rate for that bracket is 19 percent, which means that you pay 19 cents for every dollar you earn over $18,200. You don’t have to pay any tax on that first $18,200.

HECS works differently, though: once you pass the repayment threshold of $45,881, you must pay the repayment rate of one percent on your entire income, not just the amount over $45,881. If you earn $46,000 in a year, that translates to $460 a year in HECS repayments, or around $9 a week. You can see a  list of the new repayment rates for each income level here (under 2019-20 financial year).

How Do I Actually Pay Off My HECS Debt?

Just like tax, your HECS debt is typically taken out of your pay before you actually receive it. This is called the PAYG (pay-as-you-go) system, where your employer withholds a little bit of income on your behalf so that you’re not hit with a fuck-off massive bill come tax time.

This only works, however, if your employer has all the information, they need to withhold the right amount of money. When you first start a job, your employer should ask you to fill out a Tax File Number declaration form. On that form, there’s a box to check if you currently have a HECS debt, which lets your employer know they’ll need to withhold extra tax for you.

Crucially, though, the amount your employer is withholding is an estimate. If your income varies a lot, or if you have multiple jobs, there’s no guarantee that the amount of tax your employers set aside will cover your HECS repayment obligations. The ATO only calculates your total annual HECS repayment once you’ve submitted your tax return.

That means that yeah, depending on your work situation, it’s possible to get a nasty surprise. For example, let’s say that this financial year, you earn $48,000 in one job and $5000 on the side in another job ($53,000 in total). Each of your employers only knows how much they pay you, so they’ll be setting aside enough money to pay back HECS debt at the lowest rate of one percent. Combined, though, these two sources of income would land you in the two percent bracket. That means that instead of a HECS payment of $530, you’ll need to pay $1060. Because your employers only set aside around $530, the ATO will let you know that you need to make a top-up payment to cover the other $530.

You can help avoid surprises like this by estimating your HECS repayments throughout the year. Check with your employers to make sure you’ve filled in your Tax File Number Declaration form, and make sure they’re withholding money for your HECS repayments. In addition, try to keep track of the total amount of money you’re earning each year (this includes multiple jobs, any money you earn from interest or investments, and any superannuation contributions you make beyond the minimum ones your employer must make on your behalf). There’s a calculator here that can help you estimate how much you’ll need to pay in total.

Wait, How Much HECS-HELP Debt Do I Have?

You can view your current HECS-HELP debt balance at MyGov, and it should also be included on your tax return. If you finish paying off your HECS debt, make sure to let your employer know, so they stop withholding pay.

Help, Can I Defer My HECS-HELP Loan?

HECS-HELP debts are meant to be tied to income, so that you only pay the loan back when you have enough money to do so. In reality, though, many people still struggle to make their HECS repayments, and that will be especially true now that the repayment threshold is lower. Last financial year, a person earning $45,881 didn’t have to make any HECS repayments. This year, they’ll have to pay $460, which will be a pretty devastating blow for people struggling to make ends meet.

If you find yourself unable to make your HECS repayments, you can apply to have the payment amount reduced or deferred (postponed) for the year. You do need to be able to prove that making your repayment would cause you serious hardship though, or show that you have a special reason to need help (examples include facing a natural disaster, death or serious illness, or other serious or difficult circumstances). You can find out more about deferring HECS repayments here.

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Still confused? If you have more questions about how the latest changes to HECS debt work, or questions about how other government policies will affect you, email [email protected] and we’ll look into it for you.