Hi Nicole,
I recently read an article in Money by Caitlin Fitzsimmons about paying off her HECS debt. I have seen a number of columnists suggest it is a good idea not to pay off the debt but rather keep it and invest the money elsewhere as it has a low rate of interest. My daughter recently spent two years overseas. She has now got a job here and looked up her debt. Her original debt of $60,000 has now gone up to $90,000 in that time! I would have thought it would have been more prudent to have paid money off the debt (admittedly she hasn't made any investments in that time as she was just surviving!). Am I misunderstanding the process?
![Australians overseas will be hit with a fine when they get home if they don't declare worldwide income for HECS-HELP ...](http://web.archive.org./web/20170722203620im_/https://www.fairfaxstatic.com.au/content/dam/images/g/u/r/g/p/z/image.related.articleLeadwide.620x349.gxf9je.png/1500651770847.jpg)
Thanks, Maureen
That hurts! Let me first explain the Higher Education Loan Program (HELP, formerly HECS) technically attracts no interest and increases only by the same rate as prices in the economy, on June 1 each year. Debts are also not indexed until they are 11 months old.
In the past two years, your daughter's debt should have grown by just 1.5 per cent in June 2016 and then another 1.5 per cent in June 2017. But indexation was higher a few years ago; it was up at 3 per cent in 2011.
Now a year ago, the federal government applied an "overseas levy" to stop people skipping out on their local HECS for a time, or perhaps forever. The income threshold for compulsory repayments is the same as in Australia but includes Australian and overseas income. It was $54,869 in 2016-2017 (proposed to drop significantly), with the first expat payments to be made from July 1.
Say your daughter earned $AU90,000 in the last year living abroad … her overseas levy would be $6300. But that shouldn't be reflected in her HECS-HELP balance, which should only have ticked up by a couple of thousand dollars.
Could it be there were some final tuition fees added after her initial check? My feeling is getting a fee statement from the institution and reconciling this with the Australian Tax Office's records will clear up the matter.
With regards to whether to repay HECS-HELP early, I come down on the side of "no" too ... provided you invest the money to better effect elsewhere (or repay higher interest debts). At a 1.5 per cent benchmark return, that shouldn't be hard!
Meanwhile your daughter needs to brace for the surprise HECS hit from the tax office – calculate the extent of it here.
And from July 1, everyone must notify the tax office within seven days of leaving Australia if they intend staying away for 183 days or more in the year (or immediately if they already live away). They then have an annual obligation to report their worldwide income – and pay HECS-HELP or be slugged with a $3600 fine on returning home.
Nicole Pedersen-McKinnon is a money educator and consumer advocate: themoneymentorway.com. You can write to her for help solving your money problem, or with a consumer question, at nicolehelps@fairfaxmedia.com.au.