Do you have a study and training loan? If so, you may wish to consider an early repayment before 1 June 2023.
On 1 June each year, indexation is applied to the balance owing of accumulated study and training loans including Higher Education Loan Program (HELP), VET Student Loan (VSL) and Student Financial Supplement Scheme (SFSS).
When you take out a HELP loan to fund higher education, you don’t need to make any repayments until your income reaches a threshold of $48,361 (under the current rules). Once your income goes above this level, your employer will start withholding an additional component of your pay in order to cover loan repayments. Repayments start at 1% of your income if you earn between $48,361 and $55,836, and increase to 10% of income above $141,848 per annum.
The indexation figure is calculated each year after the March CPI is released. It is based on financial figures collected by the Australian Bureau of Statistics over the previous 2 years. The indexation rate for 2023 is a whopping 7.1% which is just less than double the prior year and over 4.5 times the average of the 5 years prior to that. So this means that chances are on 1 June your loan balance will increase by the highest percentage it ever has.
To make matters worse, if repayments have been withheld from your salary (or paid as tax instalments) under the pay as you go system, your loan balance doesn’t actually reduce until after you lodge your tax return, which is well after indexation has been applied.
If you can, it may be worth considering making extra payments on your loans before June 1 of this year. Any payments made between now and 1 June will apply to the outstanding balance before the indexation is applied. This prospect may be even more attractive for anyone who has only one or two years of loan repayments remaining as clearing the loan entirely will mean no more indexation ever, and any payments withheld from your salary may be refunded to you in your next tax return.
Importantly, you must allow time for the payment to process so if you choose to make a payment we recommend making the payment at least 1 week prior to 1 June. Payments can be made through the ATO connection on your MyGov account.
See your WMS contact with any questions.