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9 things to know about your HELP debt

  • 22 April 2024
  • by BG Private
  • 7-minute read

Do you have a HELP debt? Here are 9 things you need to know as we head into EOFY.

1. Understand the impact of indexation on your HELP debt

Many people think that HELP doesn’t attract much interest and is a loan you can just chip away at without much thought.

While it’s true that interest is not charged, the whole amount is indexed to inflation on June 1 each year. Indexation ensures the HELP debt maintains its value in line with the cost of living.

During a high-inflation period (like now), HELP debts can grow significantly.

As at 1 June 2024, indexation is expected to be around 4.5%. To put this in perspective, that’s an extra $1,350 on a $30,000 loan.

2. Find out how much you’ll pay

Repayments are calculated as a percentage of your “repayment income,” which is different to your taxable income.

As at FY 2023-24, once this income reaches $51,550 you have to pay HELP. The percentage of income ranges from 1% at the low end all the way up to 10% for incomes of $151,201 or more.

This can give you something to look forward to — imagine what you could do with up to an extra 10% of your income once your loan is repaid!

3. Decide on a HELP debt strategy

If you have spare cash, you might use it to pay down your HELP debt, but before you do, look at your overall financial strategy.

If you have other debts, check the interest on those. HELP is indexed once a year whereas a credit card, for example, typically accrues interest monthly, so you may find it’s better to pay off other high-interest loans first.

If you’re tossing up paying off HELP vs investing, consider whether you are likely to get more of a return by investing that money than you would lose via indexation.

Another factor to consider is that clearing your student loans means getting more in your take-home pay.

A Financial Advisor can help you navigate your options!

4. Make extra payments before May 31

Annual indexation is applied to the balance as at June 1, so any additional repayments made by the end of May will help you avoid indexation on that portion.

Don’t leave it to the last minute! Your voluntary repayment must be received by the ATO by May 31. Payments can be made via your myGov.

5. Know your HELP balance

You can check your HELP balance via your myGov but keep in mind that it may not be totally up to date for a few reasons.

Although voluntary repayments will be reflected pretty soon after you make them, the amounts your employer withholds aren’t shown until after you lodge your annual tax return.

Any new tuition fees you accrue may not automatically be shown on your balance either.

6. Make payments even if you live overseas

You can no longer hide from your HELP obligations if you live overseas. If your worldwide income meets the repayment threshold, you will have to make the relevant payments.

Once you lodge your tax return (or when you report your worldwide income via myGov), the ATO will advise how much (if anything) you owe.

7. Consider its effect on a home loan application

Every situation is unique, but losing a chunk of your income to HELP repayments may affect your borrowing power.

If you’re planning to buy a home soon, speak to a professional about whether paying off your HELP debt first is best for you.

8. Tell your employer once you have repaid it

It’s a common misconception that employers will automatically know when to stop withholding HELP but it’s actually your responsibility to tell them by giving them a Withholding declaration.

If, at tax return time, it turns out you’ve overpaid, you’ll get a refund (provided you don’t owe anything else to the ATO). If you’ve underpaid, you’ll get a bill from the ATO.

9. Think of what you’ll do with all that extra cash

It may seem like you’ll never pay off your student loans but one day you will.

And then you’ll get up to an extra 10% of your pay at payday!

At that point, it’s wise to think about what you will do with all that extra money. Will you invest it? Save it? Put it toward another debt?

A Financial Advisor can help you decide!

Contact us!

We have friendly and experienced Financial Advisors and Accountants who can help you reach your financial goals.

Contact us and we’ll help: +61 3 9810 0700 | info@bgprivate.com.au

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