Here’s what you need to know about your student loan – tax edition

For many Australians the HECS-HELP scheme allows you to defer the cost of your higher education until you start earning a stable income. It is often not thought about while you complete your study. However, if you have now entered the work force it can be beneficial to know the requirement to pay this loan back and how it is administered.

How the repayments are calculated?

The repayment of your HELP loan is compulsory once your “repayment income” is over the relevant threshold. For the 2023-24 financial year the first threshold is from $51,550 to $57,729. If your repayment income is between this threshold, 1% of your income goes towards repaying your HELP debt.

For example, if you earned $55,000 of repayment income in the 2023-24 financial year, $550 would be repaid off your overall loan. As your repayment income increases, the repayment percentage required also increases.

You can click here to determine your relevant repayment percentage.

Note that the repayment rate is not based on taxable income, it is based on “repayment income”. Repayment income is calculated by adding your taxable income, net investment losses, reportable fringe benefits, reportable super contributions and exempt foreign employment income for the financial year.

How are repayments made?

HELP repayments are made through the tax system and the repayment automatically occurs once you lodge your tax return. Although you may see a HELP repayment amount coming out each pay period, this is not being paid directly against your HELP debt. It is being paid to the ATO as part of your overall tax withheld. Only once you lodge your tax return will the ATO assess your repayment income and make the necessary HELP repayment for the financial year. Therefore, you will not see your HELP debt decreasing throughout the year but rather after your return is lodged.

Employers should withhold additional tax from your salary each pay period to cover the HELP repayments. When you start a new job, you are required to complete a Tax File Number (TFN) declaration form which includes an option to notify your employer that you have a HELP debt. If you select “yes” your employer will then withhold the appropriate amount from your pay so you don’t get a nasty HELP bill when it comes time to lodge your tax return.

If you are an ABN income earner you will not have an employer to withhold tax on your behalf. Therefore, it is important to keep in mind that you may not only have tax to pay at the end of the financial year but also potentially a HELP repayment as well. Speak to your accountant on how much you may need to budget if you are unsure.

Why is my HELP debt increasing?

Although HELP is essentially an interest free loan, your outstanding HELP balance is adjusted by indexation every year on the 1st of June. The indexation rate (or the rate your loan will increase) is based on the Consumer Price Index (CPI) in order to keep the debt in line with inflation.

You can choose to make voluntary repayments against your HELP loan if you wish. However, these additional repayments are non-refundable and not tax deductible. If you decide to make a voluntary repayment, this should ideally be made prior to the 1st June of the financial year to reduce the impact of indexation.

Related blogs:

Self-Education Expenses

Author: Kurtis Maclennan