Answering your questions on HECS/HELP debts

One of the most popular posts on my blog is my semi-rant on HECS debts, in which I urge people to think about the impact that carrying a HECS debt will have on their lives before they start studying.

Most people found my post through entering a question into Google, and through the magic of Google Analytics I'm going to do my best to answer them all here.  I've cleaned up the questions a little for clarity.

Also, the answers here are correct to my knowledge.  If I'm wrong then please let me know, I'll fix up the article.

1. Are HECS the same as HELP debt?

This one's easy - yes.

2. What is the HECS-HELP interest rate?

The interest rate on a HECS-HELP debt is equal to the Consumer Price Index (CPI) over the year.  CPI is a measure of inflation, so by changing your HECS-HELP debt at the same rate it is pegged at the same amount relative to everything else.

The indexation applied to my HECS debt this year was 2.8%

3. What happens when you finish paying your HECS debt?

You get an effective pay rise of about 6%!  The money that was automatically taken out by your employer via PAYG now goes straight into your bank account.

4. How much does HECS take out of pay?

Here is the repayment schedule for the 2008-2009 year (source):  

HELP repayment income (HRI*)	Repayment rate
Below $41,595	Nil
$41,595–$46,333	4% of HRI
$46,334–$51,070	4.5% of HRI
$51,071–$53,754	5% of HRI
$53,755–$57,782	5.5% of HRI
$57,783–$62,579	6% of HRI
$62,580–$65,873	6.5% of HRI
$65,874–$72,492	7% of HRI
$72,493–$77,247	7.5% of HRI
$77,248 and above	8% of HRI

 

5. If I pull out do I still have to pay HECS?

Yes - any debt you've incurred in previous semesters of study you have to pay.  If you've just started a new semester and are withdrawing from a particular subject, you have a month or so to withdraw from the course without incurring a debt for it.

6. What is the average age to pay HECS debt back?

This is a really tough question to answer, and a bit of Googling of my own failed to turn up any real data.  It's pretty easy to calculate your specific scenario though - you can easily calculate your expected debt by the end of your degree, then look at somewhere like Seek to find the average income for the career you head into.  The rest is spreadsheet magic!

7. Am I better off paying off my HECS-HELP debt?

In my opinion, the answer to this is no - with one caveat.  The interest rate on your debt is as low as you're ever going to see.  It's even lower than the money you can earn by putting your cash in the bank instead! You're better off putting your money in an ING account and letting it sit.

The caveat is if you can completely pay off the remainder of your debt.  You get a 10% bonus for making a voluntary repayment.  If you pay off the debt, the return on that money is 10% straight away.  If you don't pay it off completely, the return on that money must be split across the years your debt remains (as you get no further earnings from that money as you would in a bank).   This reduces the effective interest rate each time, 5% pa over 2 years; 3.3% over 3 years, and so on.

Talk to a financial advisor before you make any decisions though.

8. Am I eligible for HECS for second degree?

From the Government's site:

Does an existing HELP debt affect my eligibility for HECS-HELP?

No.  An existing HELP debt does not affect your eligibility for HECS-HELP

Looks like you'll be fine for a second degree.

Update 7 Oct 2009: It appears the requirements have changed since I wrote the above. The above link is dead, and appears to have been replaced with this page. It appears you only have 7 years worth of full-time study (about 56 standard subjects) in a life time. Once that’s gone you don’t get any more federal assistance via HECS / HELP, you have to move to FEE-HELP and if you use that up too you then have to pay for any studies yourself.

It does appear that there are concessions for individual courses that take longer than 6 years, so you don't get stuck halfway through a degree.

Thanks to Amy for pointing this out in the comments.

9. What happens to my HECS debt after leaving the country and returning?

While you're not earning any taxable income in Australia, you don't have to make any repayments.  The debt doesn't go anywhere though - it just sits around increasing at CPI every year.  When you start earning taxable income in Australia again you have to make repayments again.