Do you have an outstanding student loan, HELP (or similar) debt?
If so, we urge you to stocktake your finances and consider making a lump-sum loan repayment before June 1 which is the annual date that the ATO applies its HECS-HELP inflation indexation. This year, indexation is tipped to add about 7% to outstanding debt for Australian student loans.
Unfortunately, for many Australians, this will mean copping thousands of dollars in additional debt literally overnight.
If you’re in a more comfortable financial position, you should consider making a lump sum repayment on your student loans BEFORE the inflation indexation in order to mitigate this rise.
While there is nothing that you can do about the increase per se, you can definitely use this time to take stock of the rest of your finances and situation generally before the new indexation is imposed.
HECS-HELP loans are technically interest-free, however, they have been indexed to inflation since a 2018 change by the then Coalition government.
That hasn’t been a talking point in recent years because low inflation meant the increase was between 0.6 per cent and 1.9 per cent from 2018 to 2021.
However, it was 3.9 per cent in 2022 as inflation began rising and is now projected to peak at around 7 per cent in 2023.
It’s important to note that this does not necessarily mean your HECS-HELP repayments will rise; that’s of course determined by your income level at any given time. What will change is the total debt level.
The indexation will affect the part of your student debts that haven’t been paid over the past 11 months – so if you’ve made higher repayments in the past year the debt increase will be lower.
This is the reason that we suggest that those who are in more comfortable financial situations should consider making a lump-sum repayment – it will reduce the amount of inflation indexation.
If you have a student debt and you haven’t yet lodged your 2022 income tax return, NOW is the time to jump on this!
Please note – it is important to consider whether a voluntary repayment is the best option for you. You’ll need to weigh up a number of factors including if there are other aspects that you could be using your savings on, including extra super contributions or house deposits.
Indexation – what is it?
The Wikipedia definition of indexation explains it as a technique to adjust income payments by means of a price index, in order to maintain the purchasing power of the public after inflation.
In the context of your study debt, indexation is applied to it in order to maintain the real value of the debt by adjusting it in line with changes in the general cost of living.
On 1 June each year, indexation is applied to the part of an accumulated study and training loan that has remained unpaid for more than 11 months. These debts include the following:
- Higher Education Loan Program (HELP)
- VET Student Loan (VSL)
- Student Financial Supplement Scheme (SFSS)
- Student Start-up Loan (SSL)
- ABSTUDY Student Start-up Loan (ABSTUDY SSL)
- Trade Support Loan (TSL).
Indexation maintains the real value of the loan by adjusting it in line with changes in the cost of living as measured by the consumer price index (CPI). The indexation figure is calculated each year after the March CPI is released. It is based on financial figures collected by the Australian Bureau of Statistics over the previous 2 years.
If you have a student debt and you need help in determining what option is best for you, or to catch up on your personal tax affairs, don’t hesitate to get in touch with our friendly team.
