Where to Start With Your HECS Debt Repayment?

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Student loans have earned themselves a bad reputation, and with good reason. They’re notoriously expensive, and they can be a pain to repay. Amidst recent changes to the Australian HECS debt repayment system, things just got a bit more confusing. 

HECS (Higher Education Contribution Scheme) is under the larger student loan umbrella known as HELP (Higher Education Loan Program). HECS is the most common type of student debt, and it’s what most people simply call student loans. HECS-HELP is used by all commonwealth-supported institutions, mostly for undergraduate programs. 

Where do you start when it comes to your HECS debt repayment? How can you learn more about the kind of debt you have and understand just when you’ll need to begin your repayment? Keep reading to find out. 

What is HECS Debt?

First, let’s talk a bit more about what HECS debt really is and how it works. As we mentioned earlier, it’s the most common type of HELP debt, and it’s used most often for undergraduate courses. 

HECS is effectively an interest-free loan. Because it’s tied to the consumer price index, the amount you owe will go slightly up every year, but it’s slower than inflation. This is good news since it will help you pay off your HECS much faster. There is no time limit to completely pay off your HECS debt, so there’s no reason to feel burdened by your student loans. 

Under the HECS-HELP scheme, Commonwealth supported students can pay their university contribution amount with a loan or a discount. Today, the HELP program is incredibly popular among students, and repayment is based on your income. That being said, how well do you really understand HECS debt repayment?

How HECS Repayment Works 

Now let’s discuss how to pay back your HECS loan. Instead of needing to make payments immediately after graduation like other student loans, the HECS program is income-based. That means that you only need to begin paying your debt once you reach a certain income threshold. 

Previously, this income threshold was $51,957 a year. In 2019, it’s changed officially to $45,881 a year. The amount you’ll need to pay will be based on your income, and it will change depending on your income bracket. For example, those who earn between $52,974 and $56,151 will repay their HECS at a rate of 2%, and so on. See the full breakdown of the repayment threshold here

Similar to paying taxes, HECS payments are typically taken from your pay before you receive it. This system is also known as PAYG (pay-as-you-go). Your employer will know whether to take this percentage out based on whether or not you checked the box on your Tax File Number declaration form saying you currently have a HECS debt. 

What to Do If You Can’t Afford Your HECS Payments

HECS debts are tied to your income with the intention of helping you only begin paying when you can actually afford your payments. That being said, it’s still possible that you will struggle to afford your HECS payments, especially if you already have other debts to worry about. 

Since the income threshold is lower, even more people are finding themselves scrambling to begin paying their HECS debt payments sooner than they thought. If you’re not able to afford your HECS repayments, you have options. You can apply to have your payment deferred for the entire year as long as you’re able to demonstrate a real-life hardship. 

In special circumstances, such as if you experience a tragedy or financial problem, you can even apply to have some of your HECS debt cancelled. Ultimately, the best way to afford your HECS payments is to begin preparing for them early on and to stay on top of just how much you owe. 

Planning to Pay Your HECS Debts

Nobody wants to worry about student debts. The good news is that you have options, and you can take action to start your HECS debt repayment with confidence. Unlike other types of loans, HECS loans don’t attract interest, and there’s also no repayment deadline. With that in mind, you can feel more confident about your options. 

As far as debt goes, HELP debt is “good debt”. It isn’t rapidly gaining interest, so you don’t need to be too concerned about paying it off as quickly as possible. While you can make voluntary payments at any time, you should prioritise other debts first, such as credit card debts or personal loans. 

Here are some tips for planning your HECS debt off quickly and efficiently:

  • While studying – Avoid taking out more loans than you need. Sticking to a budget or working while in university can help you keep your total loan cost low. 
  • Voluntary payments – If you don’t have other “bad debts” to worry about, making voluntary payments towards your HECS debts before reaching the income threshold gives you a head start. 
  • Check with your employer – Always verify with your employer that they are estimating your HECS payments correctly, and keep an eye on how much you owe. 
  • Overseas – While in the past you didn’t need to repay your HECS if you moved overseas, this is no longer the case. 
  • Faster payments – Making payments faster on a voluntary basis will also help you avoid the HECS tax that increases each year. This is extra money you won’t need to pay back with your loan.

HECS Debt Repayment Help

Nobody wants to think about their student loans, especially once you’ve completed your university program and left those days behind you. Unfortunately, your HECS debt repayment might catch up to you sooner than you thought thanks to the recent changes to the income threshold. 

The good news is you have no reason to be concerned as long as you’re not struggling to repay your current debts. If you are scrambling to make ends meet, you still have options. Whether you choose to defer your payment temporarily or talk to a debt advisor about the best type of repayment strategy for you, you don’t have to let student loans get in the way of your life. 

Education is always a good investment. You’ve taken the smart decision to invest in your education and your future. Now it’s time to get out from under that debt so you can start achieving your next financial goal.

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