The Top 4 HECS-HELP Debt Mistakes Student Make
- January 24, 2018
- Posted by: Quarles Business and Financial Strategists
- Category: Financial Advice
University is your stepping stone to the career that you have been dreaming about from childhood. Whether this is becoming a Doctor, Lawyer or even a Scientist, you will more than likely end up looking into taking on a HECS-HELP Debt to pay for your tuition. Let’s face it, few people are in a position to pay the very expensive University tuition fees up front without assistance.
But what we need to talk about isn’t whether you should take out a HECS-HELP Debt, we know it’s necessary for most students to afford to study at University. No, what we need to talk about is what happens once you have a HECS-HELP Debt.
Our Financial Advisers in Perth prepared these tips to help you to avoid the mistakes that students all over Australia are making when it comes to repaying their Student Loans.
Expecting Never to Have To Pay Your HECS-HELP Debt
One problem is the prevalent thought pattern that students have with seeing the HECS-HELP Debt as being an excellent option for paying University fees, as you will likely not be required to repay it for a long time.
Currently, if you have a HECS-HELP debt, you are not required to make a payment until you earn over $55,874 for the 2017-2018 financial year, and once you reach this threshold, it is only at a small percentage of your loan that is required to be paid.
Below are the 2017 – 2018 repayment rates for HECS-HELP debt:
|2017-2018 Repayment Threshold||Repayment % Rate of Income|
|$55,874 – $62,238||4.0%|
|$62,239 – $68,602||4.5%|
|$68,603 – $72,207||5.0%|
|$72,208 – $77,618||5.5%|
|$77,619 – $84,062||6.0%|
|$84,063 – $88,486||6.5%|
|$88,487 – $97,377||7.0%|
|$97,378 – $103,765||7.5%|
|$103,766 and above||8.0%|
As most University students would be incredibly lucky to walk straight out of University and directly into a job paying over $55,874, combined with the small percentage of repayment required each year, it leaves your Student Loan to seem like a problem for another day.
The biggest problem with that mentality is that the HECS-HELP Debt gets reindexed every year. What does this mean for a University student? On the 1st of June every year all HESC-HELP Debts that have a portion unpaid for over 11 months will be re-indexed.
Indexation is when the value of the debt is adjusted to remain in line with the cost of living changes as measured by the Consumer Price Index (CPI). This is different to interest, and it essentially means that while your HECS-HELP debt may have started out at a specific dollar amount, if you leave it unpaid it will gradually increase in cost year on year.
Previous year’s indexation rates can be seen below:
As you can see if you leave your HECS-HELP Debt unpaid for a number of years it will increase over time, while your personal income may not be increasing as substantially. This is why it is best not to think of a HECS-HELP Debt as a problem for another day. Instead, if it is within your budget and finances to do so, start making repayments before you are required to.
Failing To Research Scholarship Options
This is another big doozy that our financial advisers see many people get caught out with. Thanks to the easy availability to HECS-HELP debts many times students these days are not even considering applying for scholarships. Instead, they take out a loan they think won’t need to be paid until the day they are earning a lot of money.
However, why get into debt if you do not have to? There is a wide range of scholarships available to University students, and they are not only available to at-risk or minority groups. Many Scholarships are available to students based on academic ability or even other values like leadership within the community.
So do yourself a favour and before taking out a substantial loan from the Government that you will be repaying for many years to come, take a look at this website. Australian Universities Scholarships. This website has compiled a list of links to all the Universities in Australia and the Scholarships they offer.
Some scholarships may not be enough to cover your entire tuition costs, but every little bit helps you in the long run. If you are not 100% sure about your options when it comes to scholarships vs loans, have a chat with a Financial Adviser. They can help you review your options and select the best one for your financial future.
Taking On Additional Debt When You Still Have A HECS-HELP Debt
This may seem like common sense, but at the same time, it is a mistake Financial Advisers see very often with University students and even more so with those who have recently graduated and are just entering the workforce.
With the misguided misconception that a HECS-HELP Debt is something they will not have to pay anytime soon, many students start to take on a few other small debts. Sometimes this could be a car loan, a credit card to help pay for other University costs like books or even taking a personal loan to travel after finishing University before committing to the 9-5 grind.
The problem is that the government does not take into consideration your other debts when working out if you are required to make a repayment to your HECS-HELP debt each year. All they look at is how much you are earning throughout the year.
Now what happens when you are earning just enough to cover your day to day expenses like rent & food plus your car loan and credit card repayments; however the amount you are earning puts you over the HECS-HELP Debt repayment threshold and you are required to pay 4% of your income against a loan that has been reindexed upwards over time.
You might find you may not have enough money to make the HECS-HELP Debt repayments while keeping up with your other repayments. This is why it is recommended to try and live as frugally as possible in your first few years after University and avoid taking on any other additional substantial debts until you have repaid your Student Loan.
Failing or Dropping Out Of University
Now, this may not be one that people think about when taking on a HECS-HELP Debt. However, it is equally as important as our previous points. The two biggest things you need to think about before applying for a HECS-HELP debt is not if you think you can repay it eventually. Instead, the most important thing you need to realise is that:
If you fail the University course you have enrolled in and have a HECS-HELP Debt for you still have to pay it.
If you drop out of University of your course unfinished, you still are required to repay the HECS-HELP Debt for the semesters you were enrolled, even if you have no qualification to show for it.
So it can easily be argued that this is the most significant mistake University Students make when it comes to paying for a Student Loan. Why get into debt for essentially what will be nothing at the end of the day, unless you complete your University course successfully.
As you can see, there are a number of important things to consider when taking out a HECS-HELP Debt and while it remains the most common and affordable option to pay for University tuition fees, it is something you should go into with your eyes open.
Are you applying for University and a HECS-HELP Debt? Alternatively, have you finished your University Studies and accrued a HECS-HELP Debt but are looking for advice on handling your repayments? Let us help you start your career on the right foot. Get in touch today to find out how our Financial Advisers can help you.
Keep an eye out for the next instalment in this blog series. Next month we talk about How to know you have the best financial adviser.