How to pay off your HECS faster

We have the luxury of gradually paying off our HECS/HELP loans while we work, rather than forking out huge amounts of money every semester. It’s something to be grateful for, but when you toss your cap and look at your final loan balance, you might not be feeling all that grateful.

Investing in your own education and professional development can pay huge dividends. Up-skilling or retraining all adds to your human capital which you can use to leverage cheeky pay rises or unlock a whole new world of lucrative job opportunities. But it ain't cheap, and while we're calling spades what they are, it's still debt.

Nope, Government study loans in Australia are interest-free. However, they are subject to indexation. On 1 June each year, indexation is applied to your remaining balance to maintain its real value by adjusting it in line with the rising cost of living.

Once your salary exceeds a certain amount – as of the date of publishing, it stands at $47,014 – you need to start chipping away at that debt. The idea is that you only start repaying your loan once you’re working full time and are using your qualification. 

Repayments are calculated based on a percentage of what you earn, not what you owe. For instance, if you earn $65,000 per year before tax, you’ll be paying 2.5% of your annual income towards your debt (according to the current repayment rates at the time of publishing). You'll find a handy table outlining the repayment percentages on the Study Assist website.

If you’re an employee, your repayments will be automatically taken out of your pay (as long as you inform payroll that you have a student loan). It’s a bit more hands-on if you’re a sole trader. You can either use your projected annual income as an indication of how much you should be putting away over the course of the year, or you can wait until you lodge your tax return and the ATO will tell you what your compulsory repayment amount is.

Unfortunately, you can’t move to Romania to avoid paying your student loan back. It will follow you. In 2016, the Government introduced new rules that require you to make repayments based on your “worldwide income.” 

If you do plan to move overseas for a period of six months or longer, you’ll need to notify the ATO and declare your worldwide income by 31 October each year. If you’re earning above the minimum repayment threshold, you’ll need to cough up that year’s repayments – so it’s a good idea to put money aside each pay to cover it.

No, your credit score will not be negatively impacted simply for having a HECS/HELP debt. However, having any kind of debt does limit your buying power. Generally, the larger your debt, the lower the amount you’re able to borrow. If you’re looking to take out a home loan, your mortgage broker may suggest paying off your student debt to bring you back into the black.

There's no harm in letting your HECS or HELP repayments tick away in the background, but if you are keen to get that number to zero sooner, here are a few things you can do.

Make additional repayments

Sadly, voluntary repayments are not tax-deductible but they will help you get on top of your debt sooner. You can transfer some extra cash via BPAY straight to the Reserve Bank of Australia. You’ll find the details on the ATO website – you’ll just need to have your payment reference number (PRN), also available via the ATO website. 

Use Round Ups with Wisr App

Wisr App isn't just handy for paying down credit card debt. You can actually use your round ups to chip away at your HECS/HELP debt, too. Spending $4.20 on coffee every day? That's $292 extra every year to put towards your student loans. 

When you download Wisr App and set up your ‘debt’ or ‘goal’ account, select the option that allows you pay off debt via BPAY. Then, enter the Biller Code (you’ll find this on the official ATO website) and your Payment Reference Number (to find your unique number, login to the ATO website via your myGov account, select Tax > Accounts > Summary and you’ll see number for your student loan account. 

If you’re keen to learn more about your HECS/HELP repayment obligations, you find all of the information in this article and more on the Study Assist website.