If you’ve recently finished your University degree and you are now finding yourself out in the big wide working world, I strongly urge you to read this blog!

If you’re like me and you’ve spent 3, 4 or 5 years slogging it out at University and you hear the words “HECS debt” it might make you shudder, or you could be thinking “it’ll be alright, I don’t have to worry about that for a while”. When you’ve celebrated your graduation from higher education, and perhaps gearing up for a job in your chosen field of study, your HECS debt is usually the last thing on your mind (I know it was for me anyway). I spent 5 years studying at university and much like the ‘tap and go’ with debit cards these days, my university course fees just kept being added and added and added and added…. It’s only the past 3 years when I’ve been preparing my tax return that I have actually taken note of my HECS Debt figure and I think #%*@.

Lately I have found myself discussing the same issue with friends that have finished their higher education courses and have been in their jobs for a few years now and are now earning good money. Good enough money to fall into the HECS repayment threshold! You might have seen the following table, these are the 2018/19 income year HECS repayment tiers.

Repayment Income (RI*) Repayment Rate
Below $51,957 Nil
$51,957-$57,729 2.0%
$57,730-$64,306 4.0%
$64,307-$70,881 4.5%
$70,882-$74,607 5.0%
$74,608-$80,197 5.5%
$80,198-$86,855 6.0%
$86,856-$91,425 6.5%
$91,426-$100,613 7.0%
$100,614-$107,213 7.5%
$107,214 and above 8.0%

The “Repayment Income” column is the sum of your taxable income (wages & salaries less any deductions), reportable fringe benefits, reportable super contribution, net investment losses and exempt foreign income. Now, some of that might seem like gobbledygook to you, but for most of us, we are salary and wage earners. So let’s say, your gross wages are $65,000 and you have some work related deductions totalling $550, our taxable income is $64,450. Assuming we have none of the other income items mentioned previously, this figure is also our repayment income for the table above. With $64,450 repayment income, we fall into the 4th tier of the table where our repayment rate is 4.5%. A common myth is that this means you repay 4.5% of your HECS Debt balance, but this is not the case. It is actually 4.5% repayment of your repayment income. So in our example, we are required to repay 4.5% of $64,450 which is a total repayment of $2,900.25. This repayment amount will be deducted from your HECS balance. The ATO website also has a calculator tool to help you work out your repayment information. It is available here https://www.ato.gov.au/Calculators-and-tools/Host/?anchor=STLoanRepay#STLoanRepay/questions

Now, if you’re thinking “how am I going to find that kind of money at tax time?” Don’t worry, there is one simple thing you can do. When you start a new job, let your employer know that you have a HECS-HELP debt. You can do this on your tax file number declaration form that you will need to fill out before you start work. If you have already started work and you have not notified your employer of your HECS debt, re-submit another declaration to your employer with the correct details. What difference does this make? Well, your employer will take out additional tax from each pay period in order to cover your estimated HECS debt based on the income they pay you. This way you aren’t left with a huge tax bill when it comes to preparing and lodging your 2019 tax return.

If you find yourself with some extra cash lying around, you can also make voluntary repayments at any time to the ATO.

To put it all in perspective, a standard 3 year university degree can cost around $27,000 and using our repayment example above, it would take 9.3 years to pay off the HECS debt!
I look forward to paying mine off and watching the balance reduce each year. And when it’s all paid off, I think the feeling might go a little something like this…..