Consider making a HELP repayment now to avoid 2.0% indexation to apply on 1 June 2013

www.nomoney.com.au

Indexation of 2.0% announced

The ATO has announced that the indexation factor applying to HELP debts will be 2%, to be applied on 1 June 2013. Note that this indexation factor only applies to debts that have been unpaid for more than 11 months.

 

Payment to be received before 1 June to allow processing

If you are planning to make a payment before the 2% indexation is applied (and to take advantage of the still available 5% voluntary repayment bonus for $500 and above), the ATO requires that the payment should be made with enough time for it to be received and processed before 1 June 2013. You can phone the ATO on 13 28 61 between 8am and 6pm Monday to Friday to discuss in more detail.

 

About your HELP debt

Does the government charge interest on my HELP debt?

No – the government doesn’t charge interest on HELP debts, only indexation. So, while your HELP debt will increase with time, it is probably the cheapest loan you are going to get.

 

Why is my HELP debt indexed?

Due to inflation, cash is worth less over time as the price of goods and services increases. The government applies an indexation rate (which is close to the average rate of inflation), so that the debt stays the same amount “in real terms”.

To explain by example: If you consider today that you could earn $50,000 in a job and have a HELP debt of $10,000.

In 20 years the same job might be paying $200,000 – if your debt was still $10,000 it would be much easier to pay off. By applying indexation, the government aims to keep the debt at a similar amount comparatively.

 

What is the usual indexation rate?

Since 1 June 2006, when HELP became the new name for HECS, the indexation rates have ranged from 1.9% to 3.9%, however it is commonly between 2-3%.

 

How much is my debt reduced if I make a voluntary repayment?

Discounts cancelled from 1 January 2014

As you would be aware, the current 10% upfront discount and 5% voluntary repayment discount (for amounts above $500) will be cancelled from 1 January 2014.

 

Receive 5% discount + avoid 2% inflation if paying $500 before 1 June 2013

Making a voluntary payment of $500 or more before 1 June 2013 will allow you to receive the 5% discount, as well as the amount not being indexed at 2% indexation.

Posted in Saving Money, Uni
  • Mat Jones

    With interest rates being so low, it might be worth paying off a hecs debt now, rather than paying off a mortgage.

  • http://www.nomoney.com.au Scott

    Hi Mat
    Interesting thought. I looked at whether it was better to save vs. repay HELP/HECS in my article
    http://nomoney.com.au/should-you-pay-your-uni-course-fees-upfront-or-earn-interest-instead

    I think your question is – is repaying HELP/HECS and receiving 5% discount (before 1 Jan 2014) and saving indexation each year (usually between 2-3%) better than saving mortgage interest (currently 6-7% per year).

    After the HELP/HECS 5% voluntary discount is finished (after 1 Jan 2014), I’m sure it is better to make an additional mortgage repayment.
    Even with the HELP/HECS discount, I still suspect an additional mortgage repayment will get you more bang for your buck over time.
    Scott

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