Student loan debts to increase from 1 June 2024 due to indexation
The HECS-HELP loan program is part of the Australian government’s strategy to make higher education accessible to students by reducing the upfront financial barrier for students wishing to pursue higher education.
The loan program allows eligible students enrolled in Commonwealth supported places to defer the costs of study until they are in a financial position to repay the loan.
Under the program, the Australian government pays the loan amount directly to the higher education institution on behalf of the student. This amount is then owed to the government by the student.
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How the HECS-HELP loan program works
While the HECS-HELP loan does not accrue traditional interest, the balance of the loan is indexed each year according to the CPI index to maintain its real value. Students are only required to start repaying the loan through the tax system once their income reaches a certain threshold, known as the “compulsory repayment threshold”.
For the 2023-24 financial year, this compulsory repayment threshold is $51,550. Individuals earning below $51,550 per year are not required to make any repayments, although voluntary repayments can still be made. The repayment rate increases by 1% for every increase in the repayment bracket. With the average graduate salary in Australia hovering around $75,000 per annum, the repayment rate for most graduates would be around 4%. This repayment rate can be as high as 10% for those earning $151,201 and above.
According to the most recent statistics in 2023, the average HECS-HELP debt for students was $26,500. This may be higher or lower depending on many factors, such as the course studied, the higher education institution attended, and the number of years spent studying. This means that for a graduate student with an average salary, the repayment for the 2023-24 year would be $1,060.
HECS-HELP debts to increase from 1 June 2024 due to indexation
With the most recent release of the CPI number by the ABS, accumulated HECS-HELP debts will increase by 4.7% on 1 June 2024.
While this increase is smaller than the 7.1% indexation rate in 2023, it is still a large jump from the 1-2% rate over the previous 10 years.
All this means that many former students are likely to go backwards on their loan, especially if they are not aware of the large jump in CPI which until recent times has stayed relatively low.
It should be noted that indexation is applied to any HECS-HELP debt that is older than 11 months, and once a year on 1 June.
Students that can, are encouraged to make a voluntary repayment to reduce the amount of indexation applying to the loan balance prior to 1 June.
It is recommended that this voluntary repayment be made at least 4 business days prior to the deadline to take into account any weekends and public holidays.
Possible changes to the HECS-HELP loan program in the 2024-25 Budget
The Prime Minister has recently suggested that there may be changes to the HECS-HELP debt system announced in the upcoming Federal Budget to make the student loan system simpler and fairer.
As some media outlets have speculated, this could mean a reduction in the rate of indexation or a change to the way in which the indexation rate is applied to loan balances.
Disclaimer: The information on this page is for general information purposes only and is not specific to any particular person or situation. There are many factors that may affect your particular circumstances. We advise that you contact Mathews Tax Lawyers before making any decisions.