Can you afford your HELP Debt?
By Tina Zawila
Recently it has become obvious that many ex-students (now working taxpayers) do not understand their HELP debt (that accumulated from deferring the payment for their University degree). Estimates indicate that there are 3 million Australians with a HELP Debt.
What we are finding is that:
1. Many do not know how much they owe – this is a loan that doesn’t come with a monthly loan statement from a finance company and the lender is often unaware of the level of debt they have actually accumulated. Particularly those that have started and stopped a university degree (or degrees).
2. Most do not know that their debt increases each year by “an indexation factor” – the indexation factor is applied to your HELP loan balance on 1st June each year and on 1 June 2023 this rate was 7.1%, which is much higher than in previous years (in 2022 it was 3.9%, 2021 was 0.6% and 2020 was 1.8%). On an average HELP Debt of $25,000, indexation increased the debt by $1,775 on 1 June 2023. The indexation factor is linked to the rising CPI (consumer price index which reflects the increase in the cost of living).
3. Many do not know the repayment rates and income thresholds for HELP debts – in the 2022/23 financial year if you earnt more than $48,361 you had to start repaying your HELP debt via the tax system and the more you earn the more you pay. The repayment rate starts at 1% if your income is above $48,361 (but below $55,836) and it moves up in increments until you reach income of $141,848 (and above) where the repayment rate is 10% of your income. The Australian Bureau of Statistics indicate that the average weekly earnings for a full-time adult is $1,838.10 (as at May 2023) which equates to $95,581. If you have income of $95,000pa the HELP repayment rate is 6.5% or $6,175 – that’s a lot of extra money to find!!
4. You still have to pay your HELP Debt if you are on an overseas working holiday – if you are an Australian tax resident, you must repay your HELP debt based on your worldwide income (after a loophole was closed in 2017). The trap here is that when you are working in Australia, your employer is likely to be withholding extra tax to cover your HELP Debt repayment, however your overseas employer is unlikely to withhold sufficient tax to cover this liability, leaving a gap to be paid upon lodgement of your Australian income tax return.
5. Your HELP Debt may hinder your chances to get a home (or other) loan – financiers are aware of the repayment impact of a HELP debt and it is factored into their consideration of your application for a loan.
Like most things in life, the devil is in the detail, and it pays to understand the HELP debt system before entering into it. If you need advice or assistance with your HELP Debt obligations, please contact the professional team at UHY Haines Norton CQ on 4972 1300.