(another) HECS thread

[Fire]

Hey Guys, I was just wondering if anyone out here would be able to help out in both some info and opinions.
Q's:
1). If I want to make a voluntary contribution to my HECS repayment, how do I go about doing it?
2). Is interest charged on outstanding HECS debt applied at the end of the calendar year, in increments as the year goes along?

This is my thought. Although the consensus is generally don't pay off HECS as you can do better things with the money/borrow less money in a mortgage at a higher rate etc, recently I have been considering my own position.

Personally I'm making the call that the economy is going to s**t and inflation will ramp up over the coming years. So instead of investing, or keeping my money in cash, I am considering paying off the only debt I have, that being in HECS. I figure, that as long as the answer to my second question is yearly, then I can go about making this repayment as a lump sum at the end of next financial year at a fairly large 'discount'.

* 10% discount on voluntary contribution.
* save 4% on inflation being indexed for that year.
* make 3% on interest over the year (as an average of it as the contributions come in. I will be putting in a lump sum to begin with and I will have several months to spare once I have the amount needed)
*roughly 10% of the total debt will be returned to me as a PAYG return on wiping the debt out in June.

So that would add up to about a 27% discount on the total value, and from then on I will get more money in my salary.

I know that the terms of my HECS debt are more generous than any real debt, but looking at the above, the terms of repayment are also fairly generous. I figure I might take advantage of that over the coming year, but was wanting to hear others opinions.

So please share them

 

[Forzaport]

I pulled this from the ATO website:

Voluntary repayments
You can make voluntary repayments to reduce your HELP debt at any time.

Making a voluntary repayment reduces your debt immediately.

However, you may still have to make a compulsory repayment if, after making the voluntary repayment:

you still have an accumulated HELP debt
your repayment income is above the minimum compulsory repayment threshold.
Voluntary repayments are in addition to compulsory repayments. They are not refundable. Link

Bonuses
Some voluntary repayments attract a bonus.

If you make a voluntary repayment of $500 or more, you will receive a bonus of 10%. This means your account will be credited with an additional 10% of your payment.


The bonus is 10% of the payment that you make, not 10% of the outstanding debt. You will not receive a bonus on repayment amounts that are more than the balance of your account.

Example: Voluntary repayment
Lydia has a debt of $4,500 and makes a $1,500 voluntary repayment. With the 10% bonus, the value of her repayment is $1,650 ($1,500 × 1.10) and her total debt is reduced to $2,850 ($4,500 - $1,650). Her bonus amount is $150 ($1,500 × 10%). Link

Indexation
Indexation is applied annually on 1 June to the part of your debt that has remained unpaid for more than 11 months, to maintain its real value by adjusting it in line with changes in the cost of living. Link

So, if you're working full time and paying HECS, then indexation wouldn't be an issue. Of course if you pay back your total remaining HECS you'll have more money in your pay packet.

I'm of the belief that $100 today is worth more than $100 in a year - purely because I can put $100 in a bank and earn interest on it. So if I owe someone money and there's no interest charges, I'd rather pay them later than sooner. I apply the same principle with my HECS debt. The 10% discount does skew things a bit, so you'll need to do the numbers with your own money to see if you'll truly be better off.

 

[Forzaport]

Oh and to answer your first question:

Making a voluntary repayment
You can make repayments by:

*BPAY®
*direct credit
*in person at an Australia Post outlet
*mail.

How to pay specifics

 

[Nardz]

So, if you're working full time and paying HECS, then indexation wouldn't be an issue. Of course if you pay back your total remaining HECS you'll have more money in your pay packet.

if i understand you correctly, you're completely wrong.

indexation applies every year for any debt that has been around for more than 12 months.

so in my case, my help debt started 6 years ago and ended 3 years ago.. so the entire unpaid portion of this gets indexed every year.

what they mean with the 11 months thing, is that any debt i incur THIS year won't be indexed until next year.

what shits me though, is that money comes out of my pay monthly, yet it does not hit my HELP account until AFTER the indexation. a complete scam.

 

[Forzaport]

Yes you're right, I misread the indexation rule. Sucks for anyone with a high HECS/HELP debt.

I still prefer it to be taken out of my salary though, but that's just due to my situation.

 

[Fire]

Yes you're right, I misread the indexation rule. Sucks for anyone with a high HECS/HELP debt.

I still prefer it to be taken out of my salary though, but that's just due to my situation.

Wow Forzaport, much appreciation for being so thorough. You did all my homework for me, a simple "ATO" was about all I was expecting.

So cheers for that.

However, as I later mused, it seems as if I can get the equivalent of a 'discount' more in the range of 25% by doing what I talked about. Would you still rather that be taken out of your pay?

I suppose for me I'd also be glad to get rid of any nasty surprises that can occur with a HECS debt - stuff like sudden significant burdens arising from windfalls (I have a friend who got caught in that trap when he got an inheritance), and the fact that it would take something in the order of 15 years to repay the principal of the loan at my current wage, fighting against inflation.

But again I appreciate that there are valid reasons for not repaying HECS debt, which is probably why it's the consensus. I'm just considering what else to do with my income at the moment considering I'm a bit of a bear over the coming year or so, considering the discount I can get by offloading this burden.

 

[Nardz]

* 10% discount on voluntary contribution.
* save 4% on inflation being indexed for that year.
* make 3% on interest over the year (as an average of it as the contributions come in. I will be putting in a lump sum to begin with and I will have several months to spare once I have the amount needed)
*roughly 10% of the total debt will be returned to me as a PAYG return on wiping the debt out in June.

while your first 2 points are valid, i dont think your next 2 are. you're counting interest on money that you would have otherwise been saving anyway in the 3%. you could not pay your hecs and sitll get that.

then you're counting the 10% of debt returned to you because you have overpaid your debt. that is also incorrect.

the formula of what you save is basically 10% discount + 4% indexation (* number of years you'd otherwise pay it off).

and im not sure what kind of debt you have and what salary you have for it to take you 15 years to pay the debt off.. the average us usually 6-8 years..

 

[Fire]

while your first 2 points are valid, i dont think your next 2 are. you're counting interest on money that you would have otherwise been saving anyway in the 3%. you could not pay your hecs and sitll get that.

This is a valid point, I shouldn't count that.

then you're counting the 10% of debt returned to you because you have overpaid your debt. that is also incorrect.

However its 10% that I will have to pay if I don't repay the loan in full. So from how I see it, it IS a saving as that money is gone otherwise.

I largely count it because at the rate I repay it, it goes down 2.5k from repayments, but then up again 1.5k each year. So perhaps I should lower that figure to about 6% since the other 1k would already have been counted with the 4% inflation stat. In fact, on reflection, it IS the inflation stat.

So that would lower the 'saving' to 20%.

and im not sure what kind of debt you have and what salary you have for it to take you 15 years to pay the debt off.. the average us usually 6-8 years..

About 25k on a wage, just over the threshold.

 

[Nardz]

This is a valid point, I shouldn't count that.



However its 10% that I will have to pay if I don't repay the loan in full. So from how I see it, it IS a saving as that money is gone otherwise.

I largely count it because at the rate I repay it, it goes down 2.5k from repayments, but then up again 1.5k each year. So perhaps I should lower that figure to about 6% since the other 1k would already have been counted with the 4% inflation stat. In fact, on reflection, it IS the inflation stat.

So that would lower the 'saving' to 20%.



About 25k on a wage, just over the threshold.

the threshold for help repayments is $45k


so therefore, you do not currently have to make a compulsory payment.

 

[Fire]

the threshold for help repayments is $45k


so therefore, you do not currently have to make a compulsory payment.

Sorry I expressed that last sentance terribly.

I meant to say my HECS is about 25k, and I'm on a salary just above the threshold. I'm on 50 odd.

 

[Nardz]

Sorry I expressed that last sentance terribly.

I meant to say my HECS is about 25k, and I'm on a salary just above the threshold. I'm on 50 odd.

ok that brings us back to the point though

to say it will take you 15 years to pay it off at your current salary is assuming you're in a wage freeze for 15 years.. so essentially you're paying Indexation, but not considering indexation on your salary. the whole idea is that on average, your salary should also go up by CPI.

They also raise the threshold every year for this reason, so if your salary does not go up you'll probably soon fall under the threshold and therefore not need to pay anythig.

in all honesty, yes its beneficial to pay it off financially, due to the 14% which i've already conceded is the benefit, but the problem with this is that you cant "redraw" what you pay off.

you're much better off opening an account at uBank, earning 6.51% interest, and letting that sit til you have a decent nest egg, at the very least for a rainy day.

if you decide in a couple of years time that you wanna buy a house or something like that, the bank isn't really gonna give you credit for having paid off your help debt, they're gonna wanna know what kind of deposit you have saved up.

 

[Nardz]

oh and btw.. indexation was only 1.9% in 2010.

http://www.ato.gov.au/individuals/content.asp?doc=/content/74307.htm

 

[Forzaport]

However, as I later mused, it seems as if I can get the equivalent of a 'discount' more in the range of 25% by doing what I talked about. Would you still rather that be taken out of your pay?

Yes, I would rather it still be taken out of my pay for now. I've taken the approach outlined by Nardz above. Instead of paying off my debt entirely, I've placed the money in a savings account, so at least it's always there if I need it. I think it's handy to have some cash in the bank when it comes to applying for loans or for a deposit for a house or any other investment.

I don't see HECS as something that will bite me as I'll only need to pay it based on whether I'm working or not. If I happen to get a financial windfall while still having a HECS debt, I'll happily contribute what I'm required to.

 

[borgsta2006]

I'm on 85K and copped an 8% taking from my fortnightly salary from HELP Debt of $4500. Luckily the company I work for paid a third (roughly) of the debt. I'm paying it in instalments of $300 a fortnight, which is killing the income. It's a good scheme IMO as it allowed me to go back to uni and study and I'm going back for another hit this year with a Masters Degree, which once again my workplace is paying a third of.

 

[Nardz]

I'm on 85K and copped an 8% taking from my fortnightly salary from HELP Debt of $4500. Luckily the company I work for paid a third (roughly) of the debt. I'm paying it in instalments of $300 a fortnight, which is killing the income. It's a good scheme IMO as it allowed me to go back to uni and study and I'm going back for another hit this year with a Masters Degree, which once again my workplace is paying a third of.

if your help debt is $4500 this is what you should do - pay it all of voluntarily, will cost u just under $4100. you will then get all of your compulsory payments refunded with your tax return.

you can make your voluntary payments in installments - but it has to be at least $500 at a time.

you can also fill in a new witholding declaration to tell ur work that you no longer have a HELP debt so they will no longer withhold HELP from your pay. you're allowed to do this if you're expecting to wipe your debt this financial year.

http://www.ato.gov.au/individuals/c...02/008/013/001&mnu=43386&mfp=001/002&st=&cy=1

Payees expecting to pay off their debt – Payees who have had enough additional amounts withheld to pay off their debt part way through the income year should complete a new Withholding declaration and answer ‘NO’ to the question ‘Do you have an accumulated Higher Education Loan Program (HELP) debt?’. When they have done this, you should stop withholding additional amounts.
Payees who expect to have their compulsory repayment covered part way through the year – Payees may have had enough additional amounts withheld part way through the income year to cover their next compulsory repayment. However, they may still have a debt in the following income year. They can complete a PAYG withholding variation short application (NAT 5425) and send it to us. We will then advise you to stop withholding additional amounts for the rest of the income year.

 

[borgsta2006]

if your help debt is $4500 this is what you should do - pay it all of voluntarily, will cost u just under $4100. you will then get all of your compulsory payments refunded with your tax return.

you can make your voluntary payments in installments - but it has to be at least $500 at a time.

you can also fill in a new witholding declaration to tell ur work that you no longer have a HELP debt so they will no longer withhold HELP from your pay. you're allowed to do this if you're expecting to wipe your debt this financial year.

http://www.ato.gov.au/individuals/c...02/008/013/001&mnu=43386&mfp=001/002&st=&cy=1

WOW! That's awesome information! Thanks!
Only problem is we pretty much live week to week and won't save $500 quickly to pay voluntarily which is why we chose to pay through the salary. Only have $2900 or so to go now, will take until August or so, maybe earlier with the tax refund.

Great info though!

 

[Nardz]

WOW! That's awesome information! Thanks!
Only problem is we pretty much live week to week and won't save $500 quickly to pay voluntarily which is why we chose to pay through the salary. Only have $2900 or so to go now, will take until August or so, maybe earlier with the tax refund.

Great info though!

well u could just tell ur work you're expecting to pay it all off this year so they stop taking it out of your pay

and then pay the same amount yourself voluntarily every month (but you have to top it up so its at least $500 if it isnt already)

you'll get a 10% bonus on top of your payments.. whereas if the payments are compulsory, you wont get the bonus.

 

[dmc333]

Hey Guys, I was just wondering if anyone out here would be able to help out in both some info and opinions.
Q's:
1). If I want to make a voluntary contribution to my HECS repayment, how do I go about doing it?
2). Is interest charged on outstanding HECS debt applied at the end of the calendar year, in increments as the year goes along?

1. BPAY. You get no confirmation though until your next statement arrives. If you've got a hecs/help statement somewhere you'll be able to figure it out.

2. Indexed at the end of the year I think.