HECS Debt - ATO grabs some extra $$$

LLuke256 on 02/08/2015 - 07:33

Hi All.
Long time user, first time poster.

The short version is basically that those with HECS/HELP debts:
1. Pay HECS all through the year from their salary
2. The HECS we pay through the year does not come off our HECS debt until we lodge a tax return
3. The HECS debt is indexed 1st of June each year, hence it is indexed at its highest amount because our tax return has been lodged yet
Although this is only on the order of <$100 extra the ATO gets.

Say for example i have $20,000 HECS debt and i earn $70,000.

This means i will pay 5.5% of my income through this 15/16 financial year, totaling $3,850.
Come 1st of June 2016 my HECS debt will be indexed at say 2% (adding a further $400) which will give me a total debt of $20,400.
After i lodge my tax return in say August 2016 this debt will be reduced to give me a total of $20,400 - $3,850 = $16,550

IF the $3,850 came off before HECS was indexed then it would be ($20,000 - $3,850) x 1.02 = $16,473
THEREFORE the ATO grabs an extra $16,550 - $16,473 = $77

Not huge cash i realize after typing this out.
But still would be sizable given the number of people paying HECS debts.

HOWEVER, if you wanted to stick it to the man a little bit….
I imagine you could opt not to pay HECS through the year and just gain interest on the extra $3,850 in your bank (ofcourse you still have to pay this lump sum with your tax return).
Although the interest isn't huge especially since that $3,850 is paid over the year…but it would come out to around that $77 mark over a year.
Would work extra well if you had a home loan with an offset account.

FINAL thing on HECS.
Although i haven't done it yet, I assume the best way to pay off HECS in your last year of debt (i.e say you have $4,000 left to pay) is….
Stop paying HECS through the year with your salary….save that cash and then make a 'voluntary' payment before the end of May.
You will then get the 5% bonus, which in reality means you saved $200.

Thoughts? And thank you for reading.

Education & Work

Related Stores

Australian Taxation Office
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Comments

  • tomclancy on 02/08/2015 - 08:01

    ATO lend to you at an effective 2% interest rate and you complain about their repayment calculation methods?

    If don't like the terms of the HECS debt then get a real loan at normal interest rates to pay it off. I'm sure a bank will happily take into account your monthly payments in their 5%+ interest calculations

    • Luke256 on 02/08/2015 - 08:18
      +6

      Not so much complaining as pointing something out.
      Only talking small dollars here.

      HECS is great for allowing people to get an education.
      But remember…it wasn't that long ago that education was free in Australia.

      • tomclancy on 02/08/2015 - 15:47
        -5

        Not so much complaining as pointing something out.

        And I was pointing out that you have a loan at an effective interest rate of 2%.

        You can't have your cake and eat it too.

    • whooah1979 on 02/08/2015 - 09:17
      +2

      The ato doesn't lend money. Taxpayers are the ones that's funding Hecs.

    • Onit on 02/08/2015 - 09:25
      +1

      What you have said is totally missing the point, a bank loan and human capital investment are completely different. Effectively by earning a degree you are statistically much more likely to earn a larger salary, therefore paying more income tax.

      • tomclancy on 02/08/2015 - 15:39
        +2

        I think it is you that has missed the point. Everyone here is pro-HECS. We all understand the human capital investment nature.

        The point that the OP is trying to get across is the flaws in the calculation method for effective interest (I.e. Indexation). Nothing more.

        I was pointing out that if you wanted to have a loan where monthly repayments are used to offset interest calculations then he is free to go and get a bank loan. Albeit at 5%+

        I was probably a little miffed by the OP's comment:

        HOWEVER, if you wanted to stick it to the man a little bit…

        …because it's taxpayer dollars subsidising tertiary education and the HECS scheme and it appears from the OPs post that they are trying to skip out on their obligations in a space where they have been greatly assisted by taxpayer dollars. Bite the hand that fed you much?

        • mattyman on 03/08/2015 - 09:49
          +1

          I'm not pro-HECS. HECS is a compromise. Education (and Health) should be free and we should all be paying higher taxes to cover it.

          But … HECS is our reality and the OP has made an interesting point on how to minimise your HECS debt. I don't believe he was complaining about it, more to the point, I think he was providing ideas on how to save money. That is what this website is about after all.

  • RockyRaccoon on 02/08/2015 - 09:21
    +1

    Return your degree and claim a refund from the tax department.

    But remember…it wasn't that long ago that education was free in Australia.

    Now you are being silly

    It was only for a few years in the mid seventies this was true.

    Plus at that time those studying never got any living allowance from the government "Youth Allowance". Living costs were much higher than the fees saved.

    To go to uni you either worked part time, or had family who could fund your living expenses. (Or a very few Scholarships)

    Only a very small proportion of the population went to Uni vs the proportion now.

    http://mq.edu.au/thisweek/wp-content/uploads/2015/05/Student…

    That Free education pertiod only lasted fora short time, when it was cut back to balance a budget that had got out of control. (admittedly this out of control wasnt due to this free measure, but obviously it did have some impact)

    To attend University when you couldnt earn enough thru savings or family largesse, you indentured yourself to the Education department as a teacher and you had to go where you were assigned. Remote Rural areas were the norm for many. You were free after 3 years. HECS "small dollars" is a very small price to pay.

    Getting a University education should also mean you get trained in looking past presented data, which may suit headlines and political agenda's

    By researching and digging deeper to all aspects of an issue, it proves your education was worthwhile.

    😊

  • cloudy on 02/08/2015 - 09:45
    +5

    Hey OP, u r probably right in ur thinking and calculations. But doesn't mean u will get much support I think.
    Why? Because, this is still an interest free loan, so how someone gifts a loan shouldn't be scrutinised in such detail. Secondly, it's much more practical from a IT perspective to calculate the loan at a point in time, and not a constant basis. Much much easier, and I can tell you it's tough to fix.

    I could probably point to another similar example where we are all jibbed from some time value of money. That is PAYG withholding tax. We all have wages withheld a bit, before they know our tax rate, and end up with a refund (for most people). And thereby losing on some interest. But we accept small things like this and move on:)

    • Luke256 on 02/08/2015 - 11:15

      Good point :)

  • DarkOz on 02/08/2015 - 18:47
    -4

    Well, if you don't like how the ATO handles the HECS debt and repayments you can decline it. Why not just pay upfront?

    Australians are lucky to have HECS. Students in many countries couldn't get into Universities because they couldn't afford it.

  • mingofmongo on 03/08/2015 - 07:59
    +2

    Thanks OP for pointing this out - an interesting quirk of the system.

    Not sure why everyone is making a political point about it - OP was just letting us know of something that people might take for granted in preparing their tax returns.

    Doesn't affect me, I paid off my HECS debt - but then I went to Uni back when HECS was only $1,700 a year for any degree.

  • squeeb on 03/08/2015 - 08:00
    +1

    What you say is true, your HELP debt doesn't reduce until you lodge your tax return.

    You do have the option of not having HELP deducted from your pay during the year. You could then put the money aside each pay (say into a high interest savings account, of which the interest will be taxed). Make sure that you are not tempted to touch that money. You can then pay your HELP debt when you lodge your tax return. The amount of HELP will be the same, it is just timing. However, it is just easier and less tempting for most to have the money deducted from their pay.

    • Mkh198 on 25/08/2015 - 16:07

      Squeeb- I rung up to see if I could keep the $$ in my mortgage offset account through out the year and pay it at the end of the financial year but the lady from ATO said "it is illegal to not have money coming out account each week when you have a HECS bill". Have you been told differently?

  • CacheHunter on 03/08/2015 - 08:08
    +1

    OP, you are exactly correct about the final year. It is worth doing the calculations in the second last year as well. In my case, I used a balance transfer/interest free offer with a credit card to pay the ATO my final two years just before indexation of the second last year and ended up ahead. I got a big tax return shortly after 1 July and repaid most of the credit card and less tax taken out after that, which let me today the balance.

  • Chik5555 on 03/08/2015 - 08:57
    +1

    I agree OP and had also considered this myself. Is it a requirement to pay towards your hecs through the year though? I didn't think it was really an option to just pay a lump sum

  • Mkh198 on 25/08/2015 - 16:10

    Luke256 interesting calculations. I am in the process of deciding wether to pay my remaining debt of $7600 and take advantage of the 5% credit government is offering for voluntary repayments. I would also get 11500 in qff points on the credit card. Only downside is I have less $$ for a house deposit

  • esty on 28/08/2015 - 15:45

    Dont forget about the fact that if you earn under the threshold, they dont deduct payments.

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