She's On The Money - Bonus Episode: How HECS/HELP Debt is Changing

Episode Date: May 20, 2024

How is HECS/HELP debt is changing since Treasurer Jim Chalmers outlined overhauls in the 2024 Federal Budget? Listen to this bonus micro episode as Victoria explains the ins and outs of everything you need to know! Acknowledgement of Country By Natarsha Bamblett aka Queen Acknowledgements. The advice shared on She's On The Money is general in nature and does not consider your individual circumstances. She's On The Money exists purely for educational purposes and should not be relied upon to make an investment or financial decision. If you do choose to buy a financial product, read the PDS, TMD and obtain appropriate financial advice tailored towards your needs.  Victoria Devine and She's On The Money are authorised representatives of Money Sherpa PTY LTD ABN - 321649 27708,  AFSL - 451289.See omnystudio.com/listener for privacy information.

Hello, my name is Natasha Nabanunga-Bamblett. I'm a proud Yorta Yorta, Kernai, Wolperi and Awadjeri woman. And before we get started on She's on the Money podcast, I would like to acknowledge the traditional custodians of the land of which this podcast is recorded on Awadjeri country, acknowledging the elders, the ancestors and the next generation coming through. As this podcast is about connecting, empowering, knowledge sharing and the storytelling of you to make a difference for today and lasting impact for tomorrow. Let's get into it. She's on the money.

She's on the money. Hello and welcome to She's on the Money, the podcast for millennials who want financial freedom. My friends, it is Victoria and I am back today with a solo episode, which is the first of maybe many solo rants to come. But I wanted to do a little micro bonus episode because a lot of you have been asking me recently about how HECS and HELP debts have been changing. And I thought instead of getting the whole team together and dragging everyone out of bed earlier than they want to get out of bed, I would just jump on the mic, explain a few things and hopefully over time this can be a reoccurring theme to make sure that we are as up to date with what's going

on in the media and what's going on in politics as absolutely possible. So after gut-wrenching hikes last year that saw indexation jump to 7.1%, our mate Treasurer Jim Chalmers outlined in the 2024 federal budget recently that the government is changing the way that student loans are going to be indexed and they're going to be backdating it to June last year, which essentially means they're going to be wiping $3 billion worth of debt. So today I thought I'd get you up to speed on how things are changing, what sort of amounts your debt is going to go down by and how to receive a credit if you're eligible for one. So before we get there, let's just talk about why HECS is actually changing. So basically, because we all know that the debt was increasing

at a higher rate than wages. So if you're making minimum repayments, we found that many of your outstanding balances were then more than what they were the previous year. So that obviously is quite rude. So instead of interest charged on a HECS debt, our student debts had risen each year in line with what they call CPI, so Consumer Price Index. This isn't a new concept. This has happened every year since HECS was introduced, so this isn't new. But after an inflation blow up last year and millions of us being absolutely slammed with really big increases, the government has decided to move to CAP Index, which is actually the lowest out of CPI and the wage price index. So instead of them slapping on that 7.1% of Consumer Price Index to our HECS and help

debts, they're going to move to the WPI, which again, wage price index, which is approximately 4.7%. But then when the budget came out, they are now estimating that to be around 4%. So last year was bad because obviously our debts increased by 7.1%. And now they're saying, all right, that was pretty hectic, not so keen on that. Let's actually drop it down to 4%. And what we're going to do is backdate that. So anyone who paid that 7.1%, we're going to give them a refund of what they have paid. So hex indexation is changing and it's not just for this year. They've now introduced this idea that debts are going to increase in line with whichever is lower. So whether CPI is lower or WPI is lower, whichever is the smallest one, they're going to go with that.

So CPI, just to step back a little bit, CPI essentially measures the movement in a price of like a fixed basket of goods and services. And it sounds really fluffy, but that genuinely is how they calculate it. They go to Coles or Woolies and basically have a number of goods and services that they basically benchmark the prices against. So then WPI, which is that wage price index, which you might not have heard before because we haven't really used this across the board for indexing anything, that measures the movement in wages and the price employers pay for labour. So that's how much essentially our income increases each and every single year across the board on average. And that's why last year I was jumping up and down because the indexation

rate on our superannuation was 7.1%. But we didn't get pay rises in line with that, which is why I was asking everyone to go to their employer and push for that because it is wild to think that you wouldn't be able to afford to purchase the same basket of groceries this year that you were able to last year. You should at least be in a position where your income is keeping up with being able to put the same amount of bread in a basket as you were the year before, right? So both are measured across the economic quarters of March, June, September and December. So that's when it's all reported. And as I said before, the changes are going to be backdated to basically erase last year's jump, which I think is low-key very sexy. And it's going to be applied as a

credit to your debt. So the government has said that this move is going to prevent, and I say in quotation marks, prevent growth in debt, outpacing wages in the future, which I think is really, honestly, it's a very smart way to do it because I think that inflation, as they're predicting, can in the future get out of hand again. And it was a pretty rude experience to go through last year, right? So the changes are going to have to be passed by June 1 this year. So it's coming up very soon. So it will bring down this year's incoming jump so that we don't get slammed with having to pay CPI again. And it's going to undo last year's changes. So let's go to a quick break so that you can absorb all of that. And then we'll jump into how much your debt is going to go down

by. All right, guys, we are back and I am on a little bit of a solo rant about hex and help debt, which honestly, I'm just glad that everybody let me do this. Like this is my time to shine, guys. You let me talk about money on my own. Slay. I love this for us. But what you guys are here for is to actually know about your cash. So let's talk about that. So how much is your debt actually going to go down by? If you want to calculate this for your specific amount that you have in your HECS or your help debt, you can check out the government help estimator. There's going to be a link in our show notes and you can Google it. But here are some figures. So if you had a HECS or help debt on June 30, 2023. So last year, this is the total estimated credit for 2023 and 2024

or part of 2024. So if you had a $15,000 help debt, you'll get a credit of $670. If you jump up to $25,000, you would get a credit of $1,120. $35,000, you get a credit of $1,570. And if you had a help debt of $45,000, you would get a credit of $2,020, which at this point in time, I feel like so many people in our She's On The Money community are sitting around that $50,000 like hex slash help debt range because we're all just getting out of uni and we haven't had time to smash it out. So I reckon two grand as a refund is a pretty nice sum. I mean, in a perfect world, we wouldn't have to pay anything, right? But this is not that perfect world and they do slam us with some indexation. But what I need you to keep in mind is that your credit amount is actually

going to vary based on your individual circumstances, including the repayments that you made during the year. So all help debts that were indexed in 2023 are now still subject to indexation on the 1st of June 2024, and you'll receive your indexation credit. However, if you did not incur indexation, you will not receive the credit. And I know that that sounds silly to say because it makes sense. I feel like that math maths. But a lot of people are now asking the question of, well, Victoria, I paid off my HECS debt to avoid indexation completely because, you know, maybe you wanted to increase your serviceability on a home loan or it was just giving you anxiety or you didn't feel comfortable with it. Will I receive a refund? And the answer

to that is no, because if you didn't incur the indexation, that's what they're giving you refunds on. They're not going to give you a refund on a debt that you paid off that you didn't incur that indexation on, right? So I think that that sounds silly, but a lot of people are asking it. And it's not a silly question because this is a complex system that a lot of people are like, mate, I've never had to wrap my head around to this before. So don't feel like that's me going, of course, you're not going to get a refund for something if you didn't spend the money. But next question here, how do I get that credit? Like, do I have to apply for it? No, my friends, it's going to be automatically calculated by the ATO based on how much indexation

you paid last year. And then that indexation credit is going to be applied to this year's help debt. It's not going to be a cash payment, but it will mean that at tax time, it will appear on your tax refund. So if you're all up to date with the ATO and you've broken even, which let's be honest, is the goal here. We don't want to owe tax. And in a perfect world, according to the government, they don't want to owe you money either. So it's a breakeven situation. In that situation, you would end up with a credit and potentially a sneaky little tax refund, which would be very, very nice. A lot of people have been asking me who is eligible for HELP or HEX debt assistance. So you're going to be eligible if you had an outstanding debt that was increased on

last year or is set to be indexed this year. If you had debt indexed in both years, you're going to get a credit for both, which is a money win. And the relief is also going to be applied to apprentices with debts through the VET student loan program or the Australian apprenticeship support loans. So I think that's important as well. Just we're dotting all our I's and crossing all our T's to make sure you have all of the information. But as I said, if you paid back your HECS debt last year, former students who paid back their outstanding student loan between June the 1st 2023 and the time the new proposed legislation is passed you're going to be eligible for a tax credit. So instead of getting that credit applied to your loan debt it's going to

be put on your tax and the Department of Education they've come out and they've said that if your help debt account balance is less than zero as a result of the reduction you don't have to pay other primary tax or Commonwealth debts, and the credit will be refunded via the usual ATO refund mechanisms, which is basically your normal financial institution account recorded by the ATO, i.e. your bank account. So if you've met all of that criteria, yes, you will get a refund in cash. But I think that for most people, this is actually just going to be a credit that is applied to your HECS, because a lot of us weren't actually able to extinguish the whole amount of debt. That was an absolute privilege if you could, but you weren't able to get rid of all of it. So it's

going to act as a credit and they'll only pay you back if it goes negative, which kind of makes sense. Anyway, that's my rant over. I could go on and on. I've had fun. I hope you've had fun. And I hope you've learned something really quickly about, you know, what's going on in this HECS slash help landscape. I feel like the budget has made it a little bit confusing because there's so much information out there at the moment but i've loved having this chat with you it was kind of one-sided so i do apologize for that but i hope i've given you enough information to feel really empowered about making decisions around your help and your hex so my friends i'll see you later the advice shared on she's on the money is general in nature and does not consider your

individual circumstances. She's on the Money exists purely for educational purposes and should not be relied upon to make an investment or financial decision. If you do choose to buy a financial product, read the PDS, TMD and obtain appropriate financial advice tailored towards your needs. Victoria Devine and She's on the Money are authorised representatives of Money Sherpa PTY LTD ABN 321 649 27708 AFSL 451 289.