HELP Debt Demystified: Practical Tips for Managing and Reducing Your Student Loans

Feeling overwhelmed by your HELP debt and unsure where to start? You’re not alone! This guide breaks down everything you need to know about managing and repaying your HELP student loans effectively. 

As a tax accountant, I often see that many people don’t fully understand HELP debt. And as someone dealing with it myself, I get why. There’s a lack of clear information available when students first take on this debt. Fresh high school graduates might not realize the long-term impact of repaying HELP debt well into their thirties.   

Honestly, I believe the first year of uni should be free. Around 30% of students switch their course in their first year, and 15% drop out altogether. Seventeen- and eighteen-year-olds aren’t always in the best position to choose their career paths, and they often figure this out only after starting uni. 

What is HELP Debt and How Does It Work?

HELP debt is a government loan designed to help cover your university or TAFE fees. Instead of paying upfront, you borrow the money and repay it through your income once you start earning. Unlike traditional loans, HELP debt isn’t charged interest but is adjusted annually based on inflation. This means your debt grows slightly over time, but it’s not the same as interest on credit cards or car loans.   

For more information on how HELP works, visit the Australian Government’s Study Assist page.

Repayment Obligations and Thresholds

Repayments start when your income exceeds a certain threshold. For the 2024 financial year, this threshold is $48,361. Once you earn more than this, you’ll start paying a percentage of your income towards your HELP debt. Your repayments are based on your taxable income, which includes all earnings from jobs, side hustles, dividends, and bank interest etc. 

 For details on repayment thresholds and rates, check out the ATO website

Interest Rates and Indexation

HELP debt isn’t charged interest but is adjusted for inflation each year through indexation. This means your debt increases with the cost of living. The indexation rate is based on the Consumer Price Index (CPI), which reflects changes in the cost of goods and services. 

Recently, the CPI has jumped from 0.6% in 2021 to 4.7% in 2024. The government is working to roll back some of this increase for 2023 and 2024. For the latest rates, always refer to the ATO website

An example of indexation is, if you started with a $40,000 HELP debt on July 1, 2020, and didn’t make any repayments, your debt would have climbed to over $46,000 by June 2024. This shows how inflation can quickly add up if you’re not proactive. 

Managing and Reducing HELP Debt

Managing your HELP debt involves budgeting wisely and making extra payments if possible. Making voluntary repayments can help reduce your balance and the amount you owe over time.   

Consider setting aside a little each month or seeking financial advice. The MoneySmart website offers great tips on budgeting and managing debt. 

Impact on Financial Planning and Loans

HELP debt can affect your ability to get other loans, such as a mortgage. Lenders may view your HELP debt as part of your overall financial picture, which could impact your borrowing capacity. To understand how HELP debt fits into your financial plans, consulting a financial advisor might be beneficial. 

How Does HELP Debt Work in Practice?

When you start a new job, make sure to let your employer know about your HELP debt on your TFN declaration. If you’re earning over the HELP repayment threshold and notice no repayments are being deducted on your payslip, notify your employer as soon as possible to avoid a large tax bill later. 

Your employer withholds HELP repayments from your wages, and this money goes to the ATO as PAYGW. It will appear in your prefill as extra tax paid when you complete your tax return. While repayments are deducted from your salary, they’re not applied to your HELP debt until you file your tax return. 

File your tax return before June 1 of the following year. For instance, if the tax year ends on June 30, 2024, you must lodge your return by May 15, 2025. Timely filing helps avoid issues like having no repayments made before indexation is applied on June 1, which will increase your debt. 

When you complete your tax return, your HELP repayment is calculated based on the balance of the debt at the end of the financial year. For example, if your HELP debt was $50,000 at the end of the financial year 2024 and you earned $55,000, your repayment would be $550 (at a 1% repayment rate). 

Assuming you have no additional income sources and your employer withheld the correct amount, you should generally have no extra amount owing when you complete your tax return. After your tax return is lodged the repayment amount will be credited to your HELP account, reducing your debt balance accordingly. 

FAQs

How do I know how much my HELP debt is?

Log into your MyGov account and access your ATO account to view your current HELP debt balance. 

How do I make extra voluntary contributions?

Log into MyGov, go to your ATO account, and view your HELP debt details. You’ll find your unique BPAY details there, which you can use to set up recurring payments or make one-off contributions. 

What happens when my debt is paid in full?

Congratulations! Notify your employer to stop withholding extra tax for HELP repayments. They may ask you to complete a new TFN declaration. 

 What happens to my HELP debt if I die and it’s not paid off?  

If you pass away with unpaid HELP debt, the remaining debt is generally written off. However, your estate may need to complete a final tax return, which could include a compulsory repayment for that financial year.   

How do extra repayments factor into the process?

Making extra repayments reduces your HELP debt balance, which lowers the amount of indexation applied on June 1. Your additional repayments are not factored into your tax return. They simply act as a way to decrease your balance owing over time.

What if I’m a sole trader? 

As a sole trader if you are prepaying tax via PAYG Instalments (PAYGI), remember PAYGI doesn’t cover HELP repayments. Monitor your income throughout the year and use the HELP debt repayment calculator to estimate how much to set aside for HELP repayments.   

How does salary sacrificing affect HELP debt?  

When you salary sacrifice, a portion of your pre-tax salary goes towards benefits like superannuation or other perks, which may lower the income your employer uses to calculate your HELP repayments. However, your HELP repayments are based on your gross salary before salary sacrifice. For instance, if your salary is $100,000 but salary sacrificing reduces it to $80,000, your employer might calculate your HELP repayments based on the $80,000. However, when you complete your tax return, your repayments are calculated on the $100,000 salary. To ensure you’re prepared, use the HELP debt repayment calculator to compare the two amounts, identify any shortfall, and set aside savings to cover differences at tax time. 

How Does Having More Than One Job During the Year Affect My HELP Repayments? 

When you have multiple jobs, each employer only withholds HELP repayments based on your income from that particular job. This means that if your total income across all jobs exceeds the HELP repayment threshold, you might not have enough withheld to cover your total HELP debt. 

For example, if you earn $30,000 from Job A and $30,000 from Job B, each employer will only withhold HELP repayments as if your total income is $30,000. If the repayment threshold is higher, such as $48,361, neither employer will withhold enough to cover your debt adequately. 

To manage this, you should keep track of your total income from all jobs and adjust your personal savings by using the HELP Debt Calculator. At tax time, you’ll pay have savings to cover your HELP debt.

Case Study: Gypsy vs. Monty – Paying Off HELP Debt

Gypsy and Monty both graduate from university and start their careers on July 1, 2024, each earning a salary of $80,000. They both have a HELP debt of $50,000. Gypsy is determined to pay off her debt as quickly as possible, so she decides to contribute an extra $5,000 annually towards her HELP debt. Monty, on the other hand, is content with just making the compulsory repayments. 

Gypsy: 

• Initial Payment: $4,800 (6% of $80,000) + $5,000 extra = $9,800 

• Repayment Timeline: Gypsy’s extra payments help her repay her HELP debt in about 7 years. The additional annual payment significantly reduces her principal and the amount subject to indexation. 

  Monty:

• Initial Payment: $4,800 (6% of $80,000) 

• Repayment Timeline: Monty, making only compulsory repayments, will clear his debt in roughly 15 years. His slower repayment pace, combined with annual indexation, extends the repayment period.  

Gypsy’s extra payments reduce her HELP debt in about 7 years, compared to Monty’s 15 years. This case shows how additional contributions can significantly shorten the time to pay off HELP debt. Gypsy’s extra contributions significantly shorten her repayment period compared to Monty’s. 

Assumptions: Repayment rates and thresholds are based on 2024/25 figures, with a 3% annual CPI increase. Actual repayment times may vary based on future changes in repayment rates, salary increases, and CPI adjustments. 

While there’s no legal requirement to repay your HELP debt early, doing so has its advantages. Paying off your debt sooner can save you from extra indexation and provide more financial freedom. As a new graduate or someone starting a new career, making wise budgeting choices now can help you avoid lifestyle inflation and achieve financial stability faster. By putting some extra cash towards your HELP debt, you can pay it off quicker and enjoy a more secure financial future. 

*Disclaimer: Rates and laws used in these calculations may change over time. The information provided was accurate at the time of publishing. All advice is general in nature, and you should consult a professional for guidance tailored to your individual situation.*