HECS changes look likely

HECS (HELP) changes looking likely

The government looks set to remove the HELP voluntary repayment bonus. While the changes have not gone through parliament, the bill has been introduced by the current government. It’s unlikely to be blocked by the opposition, because it was their idea in the first place. So it’s probably going to happen before parliament closes in two weeks’ time.

The voluntary repayment bonus currently reduces a person’s HELP debt by an additional 5 per cent of the payment amount when the person makes a voluntary repayment of $500 or more.

The new rules mean that a person will not receive the HELP voluntary repayment bonus for voluntary payments made on or after 1 January 2014, regardless of whether the repayment relates to a debt incurred before or after this date.

What should you do about it?

If you are close to paying off your HECS (e.g. the balance left over will be gone in 12-18 months anyway) then it makes sense to pay it off as a lump sum BEFORE 31 DECEMBER 2013.

Why? You will not only save the 5% early payment discount, but you will avoid paying indexation at the end of May 2014. Indexation is the annual increase to your HECS to cover inflation. Last year it was 2%.

Let’s say you have a HELP debt of $5,550 and your income is $70,000. That means you’ll be paying $4,200 as a compulsory payment when you next lodge a tax return anyway. And the rest will be paid when you lodge your next return after that. In the mean time, you’ll pay $136 approx in indexation over two years. So you end up paying $5,686.

If you pay the lump sum, you’ll pay a total of $5,238 now, and that’s it. Saving is $448. Not a huge amount, but if you saw $448 on the footpath, I bet you’d pick it up, right?

To look at it another way, it’s a rate of return of at least 7% over the next 18 months which is a lot better than you’ll get in an online saver. Plus, your take home pay will increase and you can use the extra money to re-build your savings or make additional debt repayments.

If you’re not sure what your HELP balance is, you can find out by calling the ATO on 13 28 61. They can also provide your BPay details to make the payment.