When is the best time to wipe your HELP debt?

University debt is one of the cheapest debts you can have, but many Australians owe money for studying that they may never pay off.

University debt is one of the cheapest debts you can have, but many Australians owe money for studying that they may never pay off.

The latest Australian Taxation Office statistics show more than 2.8 million Australians have HELP (Higher Education Loan Program) debts totalling $61.9 billion.

This has more than doubled since 2014. And more than 18,700 people have debts of above $100,000.

While students can delay paying back HELP debt — an interest-free loan for studying at a approved higher education provider — it can take years to pay back.

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The debt does not attract interest, but the loan balance is indexed on June 1 each year at the rate of the Consumer Price Index inflation. The current indexation rate is 1.9 per cent.

ATO assistant commissioner Gavin Siebert said for people planning to wipe their debt earlier there was one optimal time to do it.

“If you plan to pay off your total loan balance with a voluntary repayment, it’s best to make your repayment before you lodge your tax return or declare your worldwide income,” he said.

“If you intend to make a voluntary repayment before indexation is applied, it is important to allow enough time for the payment to be received and processed by us before 1 June.”

Studying can end up costing students ten of thousands of dollars in education costs.

There used to be financial incentives to pay off HELP debts early but these no longer exist.

If you move overseas you still have to pay back your HELP debt by declaring your worldwide income and reporting it to the ATO by October 31 each year.

For people paying back their debt from their regular salaries, automatic repayments kick in once they earn more than $51,957 annually.

The repayment threshold rates start at 2 per cent of the debt, before climbing in increments up to 8 per cent once personal income reaches $107,214.

Rising Tide Financial Services director Chris Browne said HELP debt was a great way to access education, and prioritising paying back the debt wasn’t necessary if you were carrying other high-interest debts.

“Paying off credit cards, setting up a regular savings plan into a high interest account, or making extra repayments onto your home loan are much better ways to use your money than making voluntary repayments onto your HELP debt,” he said.

“If you don’t have a home loan or maxed-out credit cards, maximise your super contributions before the end of this financial year.

“It’s much more tax-effective than worrying about the CPI you’ll be slugged on your HELP debt on June 1.”

Debtors can make voluntary repayments via BPay or by using a debit or credit card.

@sophieelsworth

HELP repayment rates

Below $51,957 — Nil

$51,957 — $57,729 2%

$57,730 — $64,306 4%

$64,307 — $70,881 4.5%

$70,882 — $74,607 5%

$74,608 — $80,197 5.5%

$80,198 — $86,855 6%

$86,856 — $91,425 6.5%

$91,426 — $100,613 7.%

$100,614 — $107,213 7.5%

$107,214 and above 8.0%

Source: Studyassist.gov.au.

Originally published as When is the best time to wipe your HELP debt?