I am going to university this year and was wondering what the community thought about putting down $500 upfront to get a 10% discount or the best way to go about HECs and financing solutions for university. I have been working throughout schooling so i can afford it. Thank you in advance for your response
HECs and university fees. What's the best way to do it?
dannyeei on 19/01/2014 - 16:32
Poll Options
- 4Pay $500 to get 10% discount
- 13Put it all on HECs
- 2Other
Comments
Thank you for the in depth response. I am definitely getting HECs, the 10% thing was more what was getting me. The only reason I'm not jumping on it though is because I think I'll value the money more now than I will once I finish uni as I'll be earning far greater amounts then.
HECS will never be privatised. There is no credit risk associated with HECS because you can't default on debt to the ATO. Its passed on to your family after you die.
The discount is going. It was meant to be gone by Jan1 2014. But it has not yet been passed by the senate. It's been passed in the house of reps. Senate meets next month, I'm not sure what priority they are giving this or whether they will oppose it.
Most people defer hecs and only make the voluntary repayment the year that they will make their final repayment. As it is a cheap loan.
http://www.ato.gov.au/Individuals/Studying-and-student-debt/…
Do they still have the option of paying in full up front and getting a 15% discount. I think this was the deal when the program first started. Back then you had to earn a large amount before you ever had to pay anything back.
15 Years ago it was 25%, it has dropped a lot since then.
The amount you have to earn before they take it back has gone up a lot also.
It is now almost pointless to pay it back, unless you are swimming in cash and have nothing better to do with it.
It's a very low interest loan (increases by CPI each year) so I would be paying off other debts prior to paying it off. In most cases it should really be the last debt you pay off voluntarily (once your income exceeds a certain threshold it comes out of your tax refunds). I personally believe the current discount (which is going) is negligible.
I'm just out of high school though and have no debts so that's not a concern. I was thinking the same thing about the discount. Thank you for the advice
it comes out of your tax refunds
I don't think that's quite correct - you're employer takes out extra amount on top of tax from each pay if you earn over the threshold (annualised, and have a HECS debt). But i guess in general it's part of the tax system - but it's called a tax return - you're not always going to get a refund - if they haven't taken enough out, you could still owe them.
Personally though, I had enough money from High school job and help from my parents to pay the first year, then a job at uni I was able to keep paying each year and had no debt at the end of it. I didn't get to see how the CPI adjustments affect it, but I think it was pretty good not to have to worry about this big (and growing) debt hanging over me, or coming out of my pay later. Obviously not everyone could do that, but I reckon, if they still have the discount and you've got some money now, (and no debts) that you pay some off. Of course, what would the same amount be worth if you invested it in shares or whatever is a different question - but that takes disipline to save it that way as well, and not just spend it - and end up with nothing, AND a Hecs debt!
A bit off topic but in practice a lot of employers withhold incorrectly, even more so when a HECS liability is involved. Sometimes this is the employers fault but other times the employee fails to mention they have a HECS debt.
That's ludicrous. They have no right to ask about finances, it's outright rude.
http://www.workplaceinfo.com.au/payroll/deductions/hecs-help
Withholding by an employer of additional tax to pay the HECS-HELP debt must commence when an employee's income is above the minimum payment threshold for the income year. It is the employee's responsibility to advise the employer about a HECS-HELP debt — by completing a Tax File Number Declaration (if starting a new job) or a Withholding Declaration (if a HECS-HELP debt is acquired after employment commences).
HECS is the exception as Bruce has explained above.
Hey Daniel, paying upfront might entitle you to a tax deduction for self education expenses. Your line of study would need to be sufficiently related to how you derive assessable income. So if it's applicable to your situation and depending on your tax rate, how much cash you have and whether you have other loans which are at a higher interest rate, you could save quite a bit over the life of the loan by prepaying and claiming a deduction. Unfortunately HECS is not an allowable deduction.
Bruce is right, you submit your HECS and other details when you join a new employer. There are mandatory (small) repayments once you earn over certain thresholds. HECS won't come out of your tax return unless you have underpaid during the year. I recommend speaking to your accountant, they can work out the better option.And how much do you need to spend to get advice from an accountant?
It is easy to say "speak to you accountant/lawyer", but does it really make sense in this case?They may do it for free when your doing tax return. Getting a tax deduction for a $30,000 tuition when your marginal tax rate 30% means you'll be $9,000 in the green. That's big bucks.
I do agree with Sira's explanation (below) how you benefit by channelling funds to the best interest rate possible.
Just my 2c.
Don't pay any money toward it until you are forced too. (background: I have $2k remaining from an approx $40k HECS debt, I studied finance and have looked at all my options regarding this debt).
From my personal experience:
HECS is indexed at the CPI (Consumer Price Index) this is currently sitting at around 1.9%. This means that the ONLY cost of this debt is the indexed inflation amount. (This is very cheap, nobody in your lifetime will give you a rate of 1.9% for a loan).
Now, the options for the money if you had it sitting in a bank account for example.
Investing the $500 in a 5 year term deposit would get you around 4.5% (rough figures) interest rates are very low at the moment and this rate would inevitably increase over the next 5-10 years.So in summary. HECS costs you 1.9% - 5% which is your discount (http://studyassist.gov.au/sites/studyassist/payingbackmyloan…) -3.1% which is the inflation minus your discount if you pay advances on all of your HECS. Now the same $500 at the bank would get you around 4.5% and im assuming you aernt in a very high tax bracket at uni so tax isnt a real issue. So lets just call it 4% to be safe.
SAVINGS FROM HECS PRE-PAYMENTS = 3.1%
PERCENTAGE GAIN IF LEFT AT BANK = 4%Some of these figures are pretty rough, but I hope you get the rough idea.
Let me put it this way.
With my nationality, I have several high contacts that work in UWS. I was recently speaking with that person that advised that HECs will soon be privatized, and I'll explain why.
HECs is a government loan, no credits checks needed. You owe the Australian Government money, and this is forwarded off to the ATO (once you start to earn money, the HECs is taken from your tax)
Two main problems.
HECs is now available to private college's promising Diplomas in one year. The problem with these colleges are
Do you see the problem I'm pointing out here? There is no credit checks, these suburbs are from high crime rate, low income, and pretty much just sign up for a $17,000 HECs study loan for the iPad.
Now, the government pay's these private colleges, but than who pay's back the government?
The government makes these investments that are common sense.
Give someone the opportunity to earn a qualified certificate to than go get employment, pay the loan back, and of course get off benefits, with that follows lower levels of help (Medicare, Healthcare Card, Pension Card, etc) and of course, pay tax on your wages.
Well, if that person doesn't continue with the course, get their certificate, find a job, work years to pay off the HECs as you have to earn $50,000 or something to even pay it back. Optional if you earn less.
Than the goverment is in debt, times this by literally 50,000+ people and you have a huge problem.
Want more information? Find this report here
My opinion of your question. I'm not familiar with the 10% thing, but obviously if you can save 10% anything that gets you over your initial $500 up-front payment is a BONUS.
The way I see it is, get in before they restrict HECs to a strict review board, and you need to prove your worthy, you'll soon need a tuition as does America.