If you've been to university then you probably have a degree and a Higher Education Loan Program (HELP) debt that's waiting to be paid off. With the financial year ending, as well as an important change coming to the HELP program at the end of the 2016 calendar year, there are good reasons to pay off this debt now in May, rather than paying it off slowly year on year.
There're two reasons that May 2016 is probably the best time to repay your HELP debt:
- On 1 June each year indexation is applied to the accumulated HELP balance.
Every year your HELP debt increases according to the C.P.I. - so the slower you pay off your debt the more you will pay in the long run. Your HELP debt is probably one of the lowest interest rates for a debt that you have so if you have other debts then it is likely that paying those debts off first is more financially beneficial. However if you have no other debts then you should consider that the CPI increase plus the HELP compulsory repayments do take quite a chunk of your money that you could invest elsewhere. - From 1 January 2017, the government will remove the voluntary repayment bonus of 5%.
Currently, if you make a voluntary repayment of $500 or more you get a 5% repayment bonus. However, the government is removing this clause from 1 January 2017.
It is very hard to get a 5% return on investment for your cash. Bank accounts certainly don't give that return and nor do term deposits. So in order to get a better than 5% return on investment you are starting to look at far more difficult investment strategies. So if you can repay your debt or as much as you can afford to pay off now - you will get a 5% discount applied to your repayment.
For example, if you have $10,000 HELP balance and pay the total amount before 1 June 2016, it can save you $726, which includes $476 of 5% bonus and the $250 index.
The compulsory repayment goes up in scale and the threshold levels are usually reviewed annually. The repayment rates for the 2016-2017 income year as follows:
| 2016-2017 Repayment Income | Rate |
| Below $54,868 | nil |
| $54,869-$61,119 | 4.0% |
| $61,120-$67,368 | 4.5% |
| $67,369-$70,909 | 5.0% |
| $70,910-$76,222 | 5.5% |
| $76,223-$82,550 | 6.0% |
| $82,551-$86,894 | 6.5% |
| $86,895-$95,626 | 7.0% |
| $95,627-$101,899 | 7.5% |
| $101,900 and above | 8.0% |
Please note that when working out your repayment income the government also includes the value of any fringe benefits you receive and any employer additional superannuation contribution which are disclosed on the annual PAYG payment summary.
Now is a good time to pay off your HELP debt before the government takes away the 5% voluntary repayment bonus.