Once you graduate, repayment of your HECS loan is not required until you earn a taxable income above certain threshold. This threshold is adjusted each year and is set at $51,957 in 2018-19. To put this year’s income threshold in context, it’s mid-way between the minimum Australian wage of $37,405 and the average full-time wage of $76,000.
The more you earn, the higher your repayment will be:
How quickly the debt must be repaid depends on how soon, if ever, a graduate begins to earn more than $51,957. The Australian Taxation Office (ATO) applies a sliding scale to determine what percentage of your taxable income will be deducted to repay your HECS debt.
Repayments begin at 2 per cent on taxable incomes between the minimum threshold and $51,957. At the other end, once you earn more than $107,214 you pay 8 per cent, or around $8500, towards your HECS debt each year.
One strategy for graduates earning at the high end might be to roll a student debt of say $30,000 into a mortgage. Across 25 years at an interest rate of 5 per cent, repayments would be just $2100 a year compared to $8500.
The downside is that over 25 years a $30,000 addition to a mortgage would collect more than $20,000 in interest.
The best strategy to tackle a HECS debt will generally depend on the differential between prevailing market interest rates and the rate of inflation. But for families with the means, full or partial upfront payment remains an attractive option.
Power2 can provide you with personalised advice for the best option to repay your HECS loan. Click here to make an appointment today.