HELP!

Some years ago there seemed to be a change in the collective mindset of the Australian community. Suddenly we went from a country where it was totally acceptable to do whatever job you wanted to one where you “needed” to have a university degree. Not that you actually do need a degree, just that there is an expectation that a bunch of jobs that didn’t previously require tertiary qualifications now need the applicant to hold a piece of paper.

 

So these days there are huge numbers of people who feel stuck in careers they feel obliged to do because of the time and money that went into the study that led to the job. And there are just as large a number of people who are starting their careers with a pile of tertiary education debt. At least they should be earning enough to see it slowly chipped away.

 

For stay at home mums and dads, earning enough to pay off a Fee HELP debt (or HECS, as it used to be known) is something that seems light years away. In the meantime, this interest free debt keeps growing.

 

How does interest free debt grow? It’s because HELP debt increases each year in line with inflation (which is currently running at about 1.6%). Yes, that is a very small percent to be paying on a debt, but if the debt doesn’t get reduced it will compound – it gets progressively bigger for every year it sits there. Five or 10 years out of the workforce, or earning under the repayment threshold, could see a substantial amount accumulate, especially if you did post graduate studies that added to your undergraduate HELP bill.

 

For the current financial year, anyone earning under $49,096 will not be required to pay back any of their HELP debt. That means if you never earn an average or just below average wage, you will never need to pay it back (unless legislation changes). Once your income hits $49,096, four percent is taken out to go towards the loan, rising to as much as 8% of your income if you earn over $91,178.

 

If you have a HELP debt and you hate the thought of owing anybody any money at all, the big question is this – should I pay it off? If you have the spare cash or a windfall that will cover the amount, voluntary repayments of at least $500 will get you a 5% discount. So for every $500 you pay back, $525 is credited. Yes, it’s bugger all incentive to get cracking on this loan. Years ago when the incentive was 10% I used to tell people to consider it, now I tell people not to bother. If you are thinking of making a repayment of less than $500 it’s pretty much a waste of time. The best thing about the HELP debt that’s been coming out of your wage being gone is that you get an effective tax free pay rise of between 4-8%.

 

And of course, all of the above assumes that the only university debt you ended up with was provided by the government. All that credit card, personal loan, car loan and other debt you racked up just to get by, that’s another story altogether.

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