Monday, 17 September 2012

HECS Debt. 3 Tips on making it work for you.

by Rob d'Apice
HECS Debt. 

Also Known As: HECS-HELP Debt.

Also Known As: that-money-you-owe-the-government-for-your-degree-but-you-don't-really-know-how-it-works.

How does HECS Debt work?

In Australia, if you're a Commonwealth-supported student (ie not a full-fee paying student), the government pays for most of your tertiary education. There's a small amount that your expected to pay, though, called student contributions. It's between $4k to $10k per year, depending on the courses your studying.

The government provides you with an loan to cover your student contributions, and it is now called HECS-HELP. Here's the scoop:

  • Amount. Depending on what you study, and the length of your course(s), you'll probably wind up with a debt somewhere between $10k and $50k. The average would be somewhere around $20k - $25k. You can check your current loan using MyUniAssist. You'll need your CHESSN number - it'll be in your 'Commonwealth Assistance Notice' that you receive each semester, buried somewhere in your inbox!
  • Interest. You aren't charged any interest on the loan, but the loan is adjusted to inflation - which is roughly 2 to 3% per annum. That's a much better deal than Home Loans (6 to 7%), Personal Loans (10 to 15%), or Credit Cards (up to 30%).
  • Repayments. You don't need to make repayments until your income reaches about $50,000 (this threshold is also adjusted upward each year). You'll then get 4% of your total salary docked to go toward debt repayments. As your income increases, the % of your income getting docked increases too - up to 8% for salaries around $90k or more. The repayments automatically come out of your pay and are processed as part of your tax return.

Basically, it's the best debt you'll ever have: no (real) interest, automatic repayments and no repayments required when you're a low income earner.

So what's the best way to make sure you get the most out of your loan? Here's our 3 piping hot tips:

1. Don't pay upfront or in advance. 

The government gives you a discount on repayments made upfront (at the beginning of semester) or voluntarily (after you've studied but in advance of compulsory repayments). For each of these payment types, you'd receive 20% and 10% discounts respectively for payments over $500, but have just been decreased to 10% and 5% respectively starting this year.

While there was a tangible advantage to paying off you debt quicker in the past, we think that the new discounts aren't enough to justify the difference that money makes to a student as compared to a young professional. In other words, having $1,000 at your disposal as a student is more important than $1,100 as a (hopefully) gainfully employed 30-year-old.

Want another incentive to hold onto your HECS Debt? If you migrate to another country later in life, you won't earn income in Australia and won't be required to pay off your debt. When you die, your HECS Debt will be forgiven, meaning your estate and/or your relatives won't be required to pay it back. The disadvantage, of course, is that you'll be dead.

But hold up: there's a strong counter-argument to this. Debt is generally a bad thing, and we'd never argue against someone choosing to pay off debt quickly. If you do pay off HECS quicker, you'll end up getting out of compulsory payments quicker - which means more take-home salary later in life. All we're saying is that you're not hurting yourself by paying off the debt at the minimum required rate.

2. Are you eligible for a benefit?

Did you study Maths, Science, Education or Nursing? Are you now working in a related industry?

You may be eligible for the HECS-HELP Benefit. If you're eligible, the government will contribute up to $2k per annum on your behalf to pay off your HECS-HELP debt.

You DO need to apply for this! It isn't automatic. Make sure you don't miss out, because the HECS-HELP Benefit counts toward your annual compulsory HECS repayments - this means that you could be getting more of your income in your pocket right now. More details on how to apply for the benefit.

3. Get Special Considerations.

Have you had to withdraw from a course after the census date?

Unfortunately, you'll still cop a bill for the course. If there were extenuating circumstances, like a serious illness or personal difficulties, you may be able to apply for special considerations so that you do not have to pay for the course.

The government has more information on this process, but you'll have to apply through your university. This process is generally different to the similar academics process (ie getting a fail removed from your transcript), so make sure you know that both are being sorted out if you go through this process.

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