Understanding your HECS - HELP Debt and the recent repayment rate changes!

How does HELP/HECS work?
A person accumulates a Higher Education Loan Program (HELP) (previously referred to as HECS) loan when they undertake study and have not paid for the fees upfront. The Government expects this loan to be repaid when the taxpayer's Help Repayment Income (HRI) reaches over a threshold. The repayment rate depends on the income of the taxpayer for that Financial Year. 

When a taxpayer with a HELP debt gains employment they are required to tick a box on the TFN Declaration Form, which means that the employer will withhold extra money to meet the HELP repayment. The money withheld by the employer is paid to the ATO. When the taxpayer lodges their tax return, their HELP repayment amount is finalised as the repayment amount is based on the income declared on the tax return.

Whilst no real interest is charged, the HECS-HELP loans are indexed each year to the Consumer Price Index (CPI). (CPI is about 2-3%, so this is what is charged each year on the loan).

HELP debt TIPS:

• If you have a HELP loan than make sure you tick the box on your TFN declaration form. I saw a taxpayer last year who had a large tax bill when they earned over the income threshold, but did not tick the box. The employer had withheld enough tax, but not the extra amount required to repay the HELP.
• If you have received reportable fringe benefits then you will be required to contribute a portion of this to your HELP debt if it takes your income over the threshold. Be careful with this as I recently saw a client who had $25,000 in reportable fringe benefits. As his gross income was over $50,000 he was required to contribute extra repayments towards his HELP which he had not accounted for.

The new HELP repayment thresholds and rates for 2013-14 are as follows:

HELP repayment income (HRI*)	Repayment rate
Below $51,309	Nil
$51,309 - $57,153	4.0%
$57,154 - $62,997	4.5%
$62,998 - $66,308	5.0%
$66,309 - $71,277	5.5%
$71,278 - $77,194	6.0%
$77,195 - $81,256	6.5%
$81,257 - $89,421	7.0%
$89,422 - $95,287	7.5%
$95,288 and above	8.0%

Help Repayment Income includes:

• your taxable income;
• your total net investment loss (which includes net rental losses);
• your total reportable fringe benefits amounts;
• your reportable super contributions; and
• exempt foreign employment income.

If you are after the previous Financial Year HELP repayment thresholds and rates for 2013-13 click HERE.