New HECS-HELP repayment thresholds from July 1 2018
Over the summer break, you mightn’t have caught up with the news that there will be new HECS-HELP repayment thresholds and rates, commencing 1 July 2018.
In December 2017, the government was able to pass the Higher Education Reform Package legislation, lowering the minimum repayment threshold required to start repayment of HECS debt.
When do you start repaying ?
The minimum HELP repayment * threshold is:
- $45,000 with a 1% repayment( ie $450 per year) on repayment income
The new maximum threshold will be:
- $131,989 ( with 10% repayment rate)
And from 1 July 2019
- all HELP repayment thresholds will be indexed at consumer price index (CPI), not average weekly earnings.
Here is the link to the new threshold amounts and repayment rates
It’s important to understand how repayment income works – this is different to taxable income:
The tax office calculates your annual compulsory repayment and includes it on your income tax notice of assessment. The amount is based on your repayment income,calculated as:
Taxable income PLUS:
- Total net investment loss (which includes net rental losses) +
- Total reportable fringe benefits amounts +
- Reportable super contributions +
- Exempt foreign employment income
So how is this different to earlier years?
|2017/18||$ 65,000||4.5%||$ 2925|
|2018/19||$ 65,000||4%||$ 2600|
|2018/19||$ 69,530||4.5%||$ 3129|
Paying off loans generally
Despite the new thresholds, HECS-HELP is most likely just one of the loans you will take out over a lifetime. And it is also one of the cheapest – as it accrues interest at a very low rate
However, paying out your HECS debt first mightn’t be the best option, especially if you have other forms of debt that are accruing interest, eg:
- credit card debt
- a personal or car loan, or
- even a mortgage
In which case, making additional contributions to your HECS debt, as well as the repayments currently deducted from your pay, is probably not a good idea. That’s because the interest rate on these loans is higher, often significantly so, than any HECS interest rate.
So, you would be better off focusing your efforts on paying off those other debts first.