The looming deadline for students to repay their debt

Save articles for later

Add articles to your saved list and come back to them any time.

The Australian Taxation Office is advising those who wish to make voluntary repayments on their student debt to process their payments well before the June 1 deadline, when an index rate of 7.1 per cent will be applied to the debt.

It’s expected more people will make voluntary repayments ahead of the indexation deadline this year, with the rates almost twice last year’s 3.9 per cent and way above the standard indexation rate of about 2 per cent.

It’s expected more people will make voluntary repayments to their student debt ahead of the indexation deadline this year, with the rate almost twice last year.Credit: Steven Siewert

Student debt – the bulk of which is HECS-HELP debt but also includes training loans – is indexed in line with inflation. As indexation is applied from 1 June, payments must be received and cleared by midnight May 31.

“We recommend that in order for payments to be received, processed and applied to accounts, clients allow four business days for this to occur,” a spokesperson for the Tax Office says.

The spokesperson says the Tax Office has the systems and resources to adequately manage any increase in voluntary student loan repayments.

If the higher indexing rate continues in subsequent years, the value of outstanding debt will rise sharply given the compounding effect of higher indexation rates. Some with debts who are making compulsory payments from their salary may think those payments are enough to stop their debt from ballooning.

For the 2022-23 year, once your income reaches $48,361, the compulsory payment is 1 per cent of income. Those earning more, repay a larger percentage of their income. It is not until a wage hits $99,997 that the compulsory rate of repayment hits 7 per cent.

These payments are usually deducted by employers from pay throughout the year and reconciled with the Tax Office when employees lodge their tax returns. Debts are not indexed until they are 11 months old. Those living overseas with student debt are required to inform the Tax Office.

Voluntary repayments are in addition to compulsory repayments, not “instead of”. In other words, repayment of the debt through the tax system continues, as long as there is outstanding debt.

The easiest way to check the balance of your student loan is to view your account in ATO Online services, which can be accessed through myGov. A number of payment methods are shown.

Financial planner Jessica Brady says for those who can afford it, paying down student debt is definitely worth considering.Credit: AFR

The student loan account is visible in online services. It shows compulsory repayments as well as any voluntary repayments, based on income tax returns, as well as the annual indexation rate.

Jessica Brady, financial planner and founder of The Greenhouse, an online financial literacy program aimed at young people, says those with student debt should be checking the size of their debt and how much is being repaid through the tax system.

Many of those with student debt will not have the financial capacity to make voluntary repayments, but for those who do, it is “definitely worth considering”, Brady says.

“Maybe you live at home and have little expenses and have some savings,” Brady says. However, those with other debts on which they are paying more than 7.1 per cent, may want to repay those debts first.

You should leave yourself enough money for emergencies, and you may have other savings goals for worthwhile purposes, which you may not want to touch, she says.

  • Advice given in this article is general in nature and is not intended to influence readers’ decisions about investing or financial products. They should always seek their own professional advice that takes into account their own personal circumstances before making any financial decisions.

Most Viewed in Money

From our partners

Source: Read Full Article