How Does A HECS Debt Work?
Let’s face it. If you want to go to Uni, you’ll probably be getting a HECS debt (or HELP Loan as they are now more commonly known). Now, there’s plenty of information out there about fee structures, sliding scales, and government reforms, but it’s all a bit of gibberish if you don’t know what you’re in for. In this article, I’m going to show you the bits you actually want to know.
What is HECS-HELP?
HECS-HELP is a government loan program designed to help students cover the costs of attending University. The costs of university vary between institutions. However, a general figure is somewhere between $6,000 and $10,000 per year depending on what you are studying. Typically, arts and humanities are towards the lower end of the scale, while sciences, law, accounting and economics are towards the higher end. Check out Melbourne University’s fee structure here
HECS-HELP basically asks the government to pay your fees while you study. They pay the University directly as a loan, and you are required to pay the loan back later in life.
The good news: you don’t have to pay any of your HECS debt unless you earn more than a certain threshold in a single financial year.
The bad news: the threshold looks like it’s being dropped to $42,000 for students starting a new degree, which is considered a low-to-mid range salary for a full-time job. Which means that even if you don’t land a decent job after Uni, you’ll likely end up paying a portion of your wages to cover your HECS-HELP. Fortunately, that portion is as low as 1% on the bottom end of the scale.
How much do you pay?
HECS repayments work on a sliding scale. This means that you pay a percentage of your annual wages, but that percentage changes based on how much you earn. Before the reform, the scale was ranging from 2% ($51,957 wage annually would mean approximately $1,000 per year in repayments) to 8% ($107,214 wage annually would mean approximately $8,000 per year in repayments).
After the reform, the minimum salary before compulsory repayments drops to $42,000, but the scale starts at 1%, meaning around $420 per year in repayments. So you start paying much earlier, but at least the payments are less.
How do you pay?
When you hold a job, a portion of your pay is withheld by your employer to pay tax on your behalf. If you have a HECS-HELP loan, they will simply withhold more (if you’re over the threshold) to account for your tax payments and HECS-HELP payments. You don’t actually have to do anything specific to pay your loan properly, as long as you properly fill out the forms you are given when you start a new job.
That’s the basics!
You get a loan from the government to pay for University, and you start paying it off through your tax when you are earning above the threshold. Easy enough, right?