As per title, here is seven more words to post
Anyone Else Scurrying to Pay off Their HECS Debts by The End of This Month to avoid 7.1% indexation?
Jaspa7 on 15/05/2023 - 14:22
Poll Options
- 37No, better places to put money (comment on what beats 7.1% in one month)
- 191No, don't have any extra money laying around
- 19Yes, will be paying off < 30%
- 12Yes, will be paying off ~ 60%
- 196Yes, will be paying off all of it!
Comments
did you have to contact your employer to stop some of your paycheck going towards HECS? or did they stop automagically?
It won't stop automatically, your employer has no way to know whether or not you have a HELP debt.
Some people don't update employers and during tax-time get a lump sum back. Might be a good way of saving
Yes, I sent my employer the updated form regarding withholding pay for a HELP loan.
where can i find this? is it a general govt form or one provided by your employer
@sagrules: fwiw you dont necassarilly need a specific form you can just tell payroll to stop, there are no regulations or whatever that specify x form must be used or any timelines, you dont have to be paying via payg at all, obviously thatll make tax time fun though
@JoJoker: Yeah this was what is heavily implied on the ATO site as well. Basically if you have a HECS/HELP debt you "must make regular contributions" or something like that.
@furys12: You legally do require a specific form. Your employer is mandated to follow the instructions of the ATO which are dictated when you supply your original TFN declaration. The correct answer is that you need to supply another declaration to the ATO to advise them that you do not have a HELP debt any further and the ATO will then authorise your employer to withhold less tax.
@sir-screwball: NAT 3093 form is the easiest way to inform the ATO but in writing with appropriate authorisation and details is fine as well.
@yummycoot: Yeah either the TFN dec or the Withholding dec will suffice. Both are binding declarations that the ATO will accept. The only time you'll ever run into strife with "just telling payroll" is if you actually haven't taken stock of your situation properly, go off either half or fully cocked and then don't have enough tax withheld and you get strung up. Even then you'll likely just have to pay the excess at tax time and nothing will happen.
@sir-screwball: But you do have a HELP debt? This is where it's confusing, they can see you have one, why would they accept a declaration saying you don't?
@miicah: For the same reason they accept the declaration pertaining to the tax free threshold etc. If you say it, they'll trust you're doing the right thing. If you make the declaration and then end up with a big tax bill they'll bend you over.
@furys12: I agree with this, I just sent email out to our payroll team and they stopped additional payments.
Yes, I had to update my details in the system to let them know not to take out HECS anymore out of my pay. Depending on the set-up you may need to contact payroll and they will have to change it.
If your on track to pay it off this tax time then your better off paying it off ASAP, like today.
say your debt is $2000 and you have withheld 2k, come 1st June your debt will become ~2140 and then you get 2k back when you do your tax.
obviously your debt changes everything.
(it used to be better when you got the %15 bulk payment discount.
Needs a "No, don't have HECS debt" option.
“Just like voting in polls”
Bikies
yeah, i would…IF I COULD :')
really regret not getting a trade instead.
You should've gone to school, you could've learned a trade.
Subtle Run DMC reference, Nice
Mastering the art of shitposting is kind of a trade though? ;)
unfortunately it only pays in worthless upvotes :)
But the internet street cred!
Never really late getting into one?
Nah I’m in too deep now - too many commitments and flat out with my salary now let alone starting again on apprentice wages and at the bottom of the food chain.
Thank god daddy paid mine.
Poor Dad. Did a good deed and the credit goes to someone who did nothing whatsoever.
Dad also got his undergrad, postgrad and doctorate all for free
Dad also bought a house for $60k which is now worth $1.5 million
Dad also sent me to public schoolIt's easy to forget just how hard this generation have it and how much of a leg up those in the past received ;).
I don't forget it. The housing situation for the current gens and anyone who doesn't have one is really tough. People are putting 50% plus just into rent. That is shit. I really think the government has to do something. Can't just have a whole underclass of ppl who'll never afford a house. Or can we? But it sucks. I remember how cheap rent was back in my day, in the late 90s. It didn't feel cheap at the time but it was nothing like this.
Well the past generation didn't have Nintendo switch, smart phones and Lego so they had to work in the farm or at the shop for entertainment. That's what my gramps tells me anyways.
by the time you are your dads age your 1.5m house is gonna be worth 20m
I'm sorry. I didn't realise this was OzBelieveingodwithoutevidence
It won't stop the people building up the debt and moving permanently overseas to some countries with much higher wages.
All that effort just to get what everyone did before 1989
That's been rescinded a few years ago.
How?
"If you move overseas and your worldwide income is above the minimum repayment threshold, you still need to make repayments on your HELP debt. You must calculate your worldwide income for the income year and report it to the Australian Taxation Office (ATO) by 31 October each year."
If you plan to move overseas for 183 days or more (around 6 months) in any 12 month period, you must notify the ATO by completing an overseas travel notification through ATO online services.
https://www.studyassist.gov.au/paying-back-your-loan/what-if….
@sagrules: And if people don't think it'll happen in whatever country they've picked to flee to, I know of several people who've had the ATO contact them whilst living in NZ, Korea, and the US.
In the grand scheme of things 7% isn't so bad. If I had the spare cash I'd pay it off. But I don't. Anyway if inflation really is going to get out of hand post war Germany style, and if wages are not going to keep up, then I doubt the increasingly left leaning government will just whack us all with mammoth amounts of debt for increasingly worthless money. The ALP would be handing government to the Greens on a silver platter if they let that happen. The sea of red would start turning into a sea of green.
It's smarter to keep the cash around unless you have a smaller amount of debt. High odds of a loan forgiveness scheme or one of the greatest bargain basement asset fire sales of our lifetimes.
Exactly. Now is not the time to be paying down the cheapest loan you will ever get
High odds of a loan forgiveness scheme
Ya reckon?
whys thatt
But the thing is your payments aren't gonna be affected is just that it'll take longer for you to pay it off. Equals more chance your debt will roll over for the next year indexation.
But yes it doesn't affect your current repayments from your pay.You reckon? Why do you say that? Cos damn. I owe 50 grand. Gonna chuck 15 on it this month. I can't afford any more than that.
Have the money but am not looking to pay it off. Just moved, that money (which is significant) could ho towards renovations.
While that's not quantifiable in terms of instant interest return, considering what we paid for the place and what recent auctions are gaining in the suburb, I have to consider that return vs an indexation blip.
I also have t consider the university accord and see whether teachers will get more bonded positions offered.
fair answer, cheers :)
Seriously if you game me 7% for a 1 mth I'd put everything I have on it including borrowing to the max and be retired forever. I know you can't do that way unfortunately but with the debt you have you can . Some people in the thread don't realize how valuable the opportunity is though .
plz explain like im 5 ?
Paid mine off in full - would have been cleared in about 2 - 3 years and honestly I regret not just clearing it last year before that round of indexation.
Only issue so far is that my workplace outsources their payroll and they are terrible at actioning my ticket and updated tax dec form to remove the extra withholding.
Last year's indexation was 3.9%, not ideal but not too horrible compared to the resulting savings rates. I'm the same.
Very true, out of curiosity I just looked back at back then BoQ was only 2% up to May with their u30s and ING 2.10% so the difference in top savings rates and indexation is still about the same.
That said, this is savings rates as at May so it would have been less in the lead up.
I'm paid off, wife isn't but not sure if she will ever earn enough to pay it back… She currently works part time. 2 kids in primary school. Probably just save money for a house.
Wife planning to be part time forever?
To those have some money, it's better to pay any amount you can. Instant 7% saving.
Instant 7% saving.
You're assuming they money is worth '0%' outside of paying that debt.
government says it's worth -7.1% over the last year..
best HISA will only get you +5.3% (BOQ - only up to 50k & only for under 35yo), so still a 1.8% better off paying HECS (provided you won't be needing the money again, of course)
Not really, after income tax the real difference probably closer to 1% in your example.
@Yonaton: It's the opposite.
The interest saved by paying down debt is tax free. The interest you earn on savings is taxed.
only 1.8pc better off paying hecs THIS YEAR. next year you might be -2pc better off paying hecs
@Thenarrator: So if I don't pay off HECS this year, you'd hope inflation decreases while savings rates remain stable. Not sure what the odds are, doesn't sound great.
@Fobsessive: inflation has already started to decrease. Inflation always lag behind rising interest rate. So there is always a point where interest rate < inflation rate inflexion point. With the I rates rising, inflation has no where to go but down.
Where do you see inflation in 2-3ys time? still at 7/8/9% at this current level of interest rate?
Except what about next year?
What if indexation is 4% and bank interest rates are 5.5%?What about the year after that if indexation is 3% and bank interest rates are 4.5%?
The $30K for example that you spent to pay off the HECS, is now not earning that interest in future years.The answer is not as simple as looking at one year on it's own. You have to consider the effects of the time value of money, compounding and the changes in future rates.
The general rule from a pure finance perspective is that if you would be paying it off in the next 2-3 years or less without the need of additional contributions, then it is probably beneficial for you to pay it off in one lump sum. However, if you have more than 2-3 years left, just let it sit.
The general rule from a pure finance perspective is that if you would be paying it off in the next 2-3 years or less without the need of additional contributions, then it is probably beneficial for you to pay it off in one lump sum.
The general rule is to not make statements of fact about topics you dont fully understand.
In both examples you have given, It is very much a borderline call as to whether you pay off your HECS debt. The key variable is your level of income which is why there is certainly no general rule regarding this.
If you are paying HECS, you are earning more than $48k per annum and your marginal rate of tax is at least 32.5%. Every dollar you earn over $45,000 is taxed at a rate of 32.5%. Therefore, the effective return you will see from interest being earned is reduced by one third. In your examples, there is virtually no difference between having an interest rate of 4.5% and inflation of 3%, they result in the same outcome. if you earn more than 120k per annum (37% MTR), it is then a better 'purely financial choice' to pay down your HECS. If you earn more than $180k (45% MTR) then it is an even more compelling option.
In the first example you provided, with inflation at 4% and 5.5% interest, from a 'purely finanical perspective it is smarter to pay down your HECS debt. If you have $10k of HECS debt left and pay it down, you will save $400 through avoiding indexation. If you invest that money, you will generate a return of $371.25 after paying tax on your interest. This assumes you are earning less than $120k. If you are earning between $120k and $180k, you will only generate a return of $343.75 after tax. If you earn more than $180k, you will generate return of $302.50. In all three examples, your return is greater by paying off your HECS debt.
The time value of money is a flawed response. Firstly, you are assuming that the average person is highly savvy and investing/engaging a financial advisor and that is not the case. The constant theme in this thread is the tradeoff between earning interest or paying down the debt and the trade off is, imo, in favour of paying down the debt. Seperately, by paying down your HECS debt you will free up cash flow as you are no longer paying 5% of your after tax income towards your HECS debt (the rate paid by the median wage in australia).
That said, there is definitely no golden rule. Your circumstances are unique and having access to said cash may provide you with other benefits such as peace of mind or a security net. Only pay down what you can afford to and get personal financial advice when doing so.
@bman20: Again, you are looking at each year on it's own, independently, you have completely ignored the impact of compounding - one of the key reasons why it might not be beneficial for people who are looking at long term HECS debts to not make a lump sum payment.
In the first example with the $10K HECS debt, while in that year specified, the difference sides towards paying off your HECS debt by a measly ~$30 for an average Australian earning less than 120K, what about the effect of compounding a few years later?
Year 1: $10,000 + 3.6% interest return (this is 5.5% interest after accounting for tax rates of 34.5% [Side note that your example forgets to include Medicare levy 2% when accounting for tax implication]) = A return of $360
Year 2: $10,360 + 3.6% interest return = A return of $372.96
Year 3: $10,732.96 + 3.6% interest return = A return of $386.39As you can see from the above calculations (I CBF doing every year), by about year 6-7 when also accounting for the cash flow difference and returns on that, the effect of compounding will actually begin to outweigh the indexation benefit of $400. Hence why I say, that the general rule is that if it is a longer term HECS debt, financially it can outweigh as we see inflation return to normal. But yes, this is a GENERAL rule and everyone has their own individual circumstances, and may have different views about where interest rates and inflation rates are heading. This also doesn't factor in people's risk tolerance, emergency funds etc. etc. Everyone should review their own circumstances, but it's absolutely misleading that people view it as a one off 7% gain and then mislead others into thinking it's 100% the right choice to pay it off. Which is what the original comment here is saying, and why I made my comment.
Also, just because someone does not have access to a financial advisor, it does not mean that the whole concept of the time value of money is suddenly invalid? This is particularly true in today's environment when interest rates are high and one can guarantee a 5%+/annum return with a simple HISA. If someone's only option for investment returns was through high risk trading, then perhaps I could agree with you more, but that's not true in the current economy.
@Twitchh: HECS debt compounds too.
By not putting the proverbial 10k into your HECS debt, that 10k is going to compound by next years indexation rate less whatever you have paid off. It is literally the same impact on both sides of the coin. the interest you earn at the bank compounds inclusive of anything you contirbute - it is literally the same concept just one applied to interest being paid and the other applies to interest being earned.
The time value of money argument is only valid in this example if you are exceeding the market interest rate. the reason for this is, as shown in my examples, that simply earning the market interest rate will not leave you in a better position than by avoiding the significant increase to your HECS debt.
@bman20: Yes except the general premise is that typically your expected rate of return from using those funds elsewhere will compound at a greater rate than the rate that that HECS compounds AND in the average individuals case, they will still be repaying their HECS, just slower. Hence why longer term plans might generally favour the person that did not repay their debt.
"that simply earning the market interest rate will not leave you in a better position than by avoiding the significant increase to your HECS debt."
You cannot say this with certainty without knowing what the future market interest rate will be in comparison to future indexation, which you don't know, so yes, the time value of money is still something that should be considered.
@Twitchh: @bman20 @twitchh OMG I wish you blokes could come to an accord so I knew what to do!
I owe 50 grand. Was going to pay off 10 just to ease the sting a little. I could do the whole amount, but it would hurt my savings too much and I'm about to buy a house. So 10 grand it is.
@Sxio: That is a question only you can answer my friend, we don't know many things about you to do the math on whether it's a financially smart move or not, we also don't know what you estimate future interest or indexation rates to be, that's something you have to think about for yourself.
Your income? HECS repayment rate? your other debts? Will having 10K off your HECS making a material impact in your borrowing capacity for this house you are buying? Will you have enough emergency fund after buying the house, if you spend 10K on HECS?
Personally if it was me, I would be keeping the 10K, considering you won't even be repaying the whole debt off, so your monthly cash flow will not change regardless as you will still be having HECS withheld from your pay. And then throw in buying a house, if you're using most of your savings on the deposit, you may need that 10K at some point if emergency expenses come up.
Try not to get caught up in the 7.1 Indexation figure.. It's not as drastic as people make it out to be IMO.
@Twitchh: You reckon not to worry? What you're saying makes sense except…. it went up almost 4% last year and now 7% this year… Pls don't laugh at my maths (I'm not great) but that's more than 10% in 2yrs… Right? I'm worried this is going to start growing out of control if i don't take steps now to take care of it.
@Sxio: I mean it really depends whether you think that the current inflation rate will stay consistent?
Personally, I think we see inflation return back to its 2-3% level, and the government is keen to get this rate back to this level. So, with that being my personal view, I then think future indexation will only be around the 2-3% mark, as it has been for many years prior to the last 2.
You are scared that the last 2 years has resulted in 10% indexation, understandably so, but do you know what the indexation rates for the prior 10 years were?
2022 - 3.9 per cent
2021 - 0.6 per cent
2020 - 1.8 per cent
2019 - 1.8 per cent
2018 - 1.9 per cent
2017 - 1.5 per cent
2016 - 1.5 per cent
2015 - 2.1 per cent
2014 - 2.6 per cent
2013 - 2.0 per centEveryone is very caught up in this anomaly year that we are in IMO, government is trying to get this back to norm and we will go back to normal indexation rates and then not many people will even be debating this decision of whether to pay it back or not.
Now if you have other views, that is fine, and may change your approach. But that's my view, and is why I'm not fussed about it.
@Twitchh: No, no, I'm not scared. I'm just trying to learn more and you seem to know a few things.
If interest rates return to low, my outstanding balance doesn't shrink though right? It's still 10% more? And always increasing every year…
I feel we're in for at least 2 more years of this before it starts to come back down but i base that on… Just a vibe. I don't think I'm going to pay it down now though because like you said, house coming up requires me to have maximum cash reserves on hand.
@Sxio: No your outstanding balance won't shrink, but you've got $10K in your bank still. Just as a simplistic example:
Option 1:
Pay off 10K HECS. Here are your indexation savings based on my personal predictions of indexation if you pay it off today:2023FY: 7.1% of $10,000 = $710 saving
2024FY: 4% of $10,710 = $428 saving
2025FY: 3% of $11,138 = $334 saving
2026FY: 2.5% of $11,472 = $287 saving
2027FY: 2% of 11,759 = $235 saving
2028FY: 2% of 11,994 = $240 saving
2029FY: 2% of 12,234 = $245 saving
2030FY: 2% of 12,479 = $250 savingOver 8 FY's, you might theoretically save $2,729 of indexation if you pay $10K today towards your HECS.
Option 2:
Do not pay off 10K and put in HISA:2023FY: 3.6% on $10,000 = $360 saving
2024FY: 3.7% of $10,360 = $383 saving
2025FY: 3.3% of $10,743 = $355 saving
2026FY 3% of $11,528 = $333 saving
2027FY 2.9% of $11,861 = $344 saving
2028FY: 2.5% of $12,205 = $305 saving
2029FY: 2.3% of $12,510 = $288 saving
2030FY: 2% of $12,798 = $288 savingIn this scenario I have assumed that the government will begin lowering interest rates once inflation gets under control, over the same time span of 8 FY's, you would save $2,656 in a HISA.
So in this scenario, the savings from paying off $10K now, is basically identical to not paying off the indexation. Where the benefit really comes in from not paying off the $10K now, is if you can get better returns than the 2-3% offered by a HISA.
If you're using the $10K as an offset for your future house mortgage, which might be at a 5% interest rate, then your rate of return/savings from keeping the $10K is going to be much higher than my example in option 2 above. Or if you're able to invest the money in an ETF instead and get a annual return of 6% or so before tax, then you will again, have a higher rate of return in Option 2.
There is a lot of speculation to determine what is best for you, and you need to figure out if you're not going to pay it now, what are you going to do with your money that is going to make it beneficial and to maximise it's use (which i think buying a house is good maximisation of that money IMO, as the house might grow 6-10% annually).
I hope that gives you an idea of the calculation you need to be making, accounting for compounding.
EDIT: I just want to say that while the finances may side towards one option, it's also important to consider your mental health and wellbeing, and whether not making such payment would cause you stress and negatively impact your life. There's many factors to the decision, not just financial, but I'm just hopefully showing everyone the financial side that people seem to overlook.
@Twitchh: not quite:
Option 1:
Pay off 10K HECS. Here are your indexation savings based on my personal predictions of indexation if you pay it off today:It's a one-off 'dodging', not a 'saving' every year.. and you're also neglecting your take-home pay that now also grows by
~80k: 5.00%
~90k: 6.00%
~100k: 7.00%
~120k: 8.00%
~130k: 9.00% etc.. due to not having to pay off HECS anymore.
So for your 10k scenario, someone earing 100K:2023FY: -10k
2024FY: -3k (minus another ~$500 that could've been earned in interest)
2025FY: +3kafter this, that money can go back into HISA/against variable offset and will start beating option 2 again.
@Jaspa7: I am specifically referring to @Sxio's scenario, where they have mentioned that they are only paying off 10K of their 50K debt.
In this scenario, there will be no increase in take-home pay, at least not for quite some time.
I don't know what sxio's salary is, but it if they've still go 40K debt they probably won't see the benefit of that additional take home pay for quite some time."It's a one-off 'dodging', "
False, option 1 is not a one-off dodging, because you also have to account for the future indexation that you will be avoiding by having the 10K paid off. This effect is compounded each year as well.
@Twitchh: You get taxed on that interest. Recalculate that minus 32.5-45% and see if you think it’s still worth it. If you’re not working to be taxed don’t even consider paying off this.
@Milkywayss: My example is with the interest being taxed…. soooo no need to recalculate
5.5% interest is equivalent to 3.6% return for an individual on a marginal tax rate of 32.5% + 2% medicare levy.
The only thing I haven't considered is that IRL your interest will compound monthly, actually increasing the return that I calculated. I have done this on annual compounding.
Save 7% tax free or invest it wherever and be taxed.
My mumma paid mine.
Edit: (2010) international student
Then you don't have HECS debt, did mumma teach you to read?
My mumma worked hard for their children and did not rely on the gov’t to provide education for their children.
And you'll be expected to do the same for your children.
And yet you still can't write the whole word "government". Would your mumma like her money back?
Realised around October last year I wasn’t far off so paid it in full then and haven’t had my pay withheld since. Wish I’d paid it off this time last year though.