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HELP! How does my HELP Loan work?

Updated: May 15

The idea of going to University and charging all the fees to your HELP Loan seems like a really great deal when you are young and carefree. That is later me problems, right?

But what happens when you reach later me age and you have a great job, and start earning some serious money and have to start repaying the debt? Well read on later you, because we have some answers!

When do I have to make repayments?

The repayment thresholds were changed slightly in the past few years. For the 2024 financial year you will need to start making repayments once your repayment income (which is actually different to your taxable income as it includes adding back net investment losses (which includes net rental losses), total reportable fringe benefits amounts, reportable super contributions and exempt foreign employment income) reaches $51,550 (you can re-read that bit as we know it's ALOT of accounting jargon to throw at you).

At this rate you will pay back 1% of your repayment income. The repayment rate increases as your income increases and all of the thresholds and rates can be found here.

How much do I repay and how?

You pay a certain percentage back each year based on your repayment income (see above). As an example, if your repayment income is $55,000 you will need to pay $550 off of your loan. The repayment is not calculated as 1% of your loan balance but rather 1% of your repayment income. This is calculated when you lodge your tax return each year, and the payment is made as part of your tax payable amount or is deducted from your refund.

For most people, when you complete your TFN declaration with your employer, you will indicate that you have a HELP Loan, and your employer will start withholding the repayment amount as additional tax from your wages each pay cycle - lucky you ... we know you may not feel that way though!

One thing to note about this is that whilst you are making a payment to the ATO regularly via additional tax withheld, this amount does not actually get allocated to your HELP Loan. The repayment is calculated annually and allocated when your tax return is lodged.

You can also make voluntary repayments if you wish. Previously voluntary repayments attracted a discount on the loan amount, but this is no longer the case and voluntary repayments are no longer as attractive as they once were - dang it!

My loan is interest free right?

Ummmmm NO! (there is no gentle way to say that one unfortunately). Whilst they don’t call it interest, the loan is indexed annually based on an annual CPI figure. This amount is applied to your loan on 1 June every year and is based on the balance at that date. As highlighted earlier, any amount withheld from your wages during the period 1 July to 1 June won’t have been applied to your debt yet either, so you will be indexed on a higher loan balance.

In the past this rate has been reasonably low and inconsequential, it was 0.6% in 2021. However due to inflation, the indexation rate is now 4.74%. This means that if you have a loan of $30,000, you would have had indexation of $1,422 added to your balance on 1 June 2024. This amount is quite large and will mean that a lot people may pay more interest on their loan this year than they actually repay.

PS. In the 2024 Federal Budget the Government is looking to roll back the CPI indexation of all HECS-HELP loans to 1 June 2023, giving them a friendlier, reduced indexation rate. We don't know how, when or quantum just yet but will let you know when we know. They’re also looking to cap indexation at the lower of CPI or the Wage Price Index. Phew!

But do not fear, we are here to save the future day (or try to anyway). If you want to make a voluntary payment on your loan prior to 1 June 2024, it will reduce the balance and therefore reduce the amount of interest that is applied. So for those with a lower balance, that may well be paid out once the 2024 tax return is lodged, it may be worthwhile considering making a voluntary repayment before 1 June 2024, to reduce the interest applied to the loan (cashflow allowing of course!) #yourwelcome

What if I leave the Country?

They got ya here too, the ATO saw that loophole and cracked down on those leaving the country with HELP Loans a few years ago. If you are no longer an Australian Tax resident but still have a HELP Loan, you need to report your world wide income to the ATO and make a repayment based on this amount. You can find more information about this here.

So there you have it. We hope that we have been able to HELP 😉 you work through this one. Still have questions? That's OK, feel free to make contact with one of our oh so cool not nerdy at all team members today.

Disclaimer: The information provided is general in nature and does not take into account your personal situation. You should consider whether the information is appropriate to your needs, and where appropriate, seek professional advice

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