With a forecast interest rate increase of 7.1% to balloon HECS & HELP loans this July, many are concerned about what that could mean for their student loan balances.
HELP debts are indexed annually to maintain their real value by adjusting them in line with changes in the cost of living as measured by the consumer price index, otherwise, they are interest-free. The indexation adjustment is made by the ATO on 1 June each year and applies to the portion of the debt that has remained unpaid for more than 11 months.
The average balance of a HECS Debt/HELP Loan is around $22,636. However, many students may find themselves with loans in greater excess of this amount long after finishing their studies. This is particularly the case when indexation of the loan occurs year after year.
If you’re guilty of thinking about your student debt as a ‘set and forget’ loan, or believe you can claim back on any repayments you make, you could be in a pickle next financial year.
While it could be beneficial to invest money into paying off part of your student loan (and reducing the balance before it is indexed on the 1 July), don’t be mistaken in thinking you can claim that money back on your tax return.
Educational fees are only tax-deductible if paid via a salary-sacrifice arrangement (where an employer pays for the fees incurred before they become a HELP debt) or if they are incurred for self-education purposes.
However, if you have the funds available to pay off part of your debt, it imay be best to do it now to avoid an inflated addition to your debt’s balance. Start a conversation with your accountant or advisor to find out the best outcome for your circumstances.
