Proven Ways to Beat Uni Debt
Over the past ten years, tertiary education costs have increased, posing financial challenges for students and graduates. While some students are fortunate to be able to cover educational costs upfront, most will rely on the Higher Education Loan Program (HELP), known as HECS. Whether undertaking your first undergraduate degree or taking an additional course to upskill and stay ahead in your career, further education comes at a hefty price tag. While study costs are hefty, there are ways to lessen the debt burden with a bit of planning before and during study, and after graduation.
Before/ During Study
Gather Some Savings (If Possible!)
Some people have a buffer saved for studying, others don't. As a school leaver, saving may not be a priority before starting Uni, and not everyone can rely on their parents for help. In these situations, there may be no option but to take extra debt or apply for grants for subsistence and course fees. However, if there is an option for working for a while to save before starting or if you are studying as a mature student, having a savings buffer will save you significant money and interest on HECs loans in future. Plus, even a small emergency fund can help you avoid debt when unexpected costs arise.
Consider Additional Costs
When you start studying, especially if you are moving out on your own for the first time, keeping costs down and sticking to your budget is essential. Consider your rent, food, transport, and utility bills costs carefully and be savvy about living arrangements. For example, sharing a place can be much more affordable than trying to live alone. Keeping your living costs as low as possible will ensure there is more money to cover costs, such as books and resources not rolled into your fees. This will ensure you don't take more debt than is essential, meaning fewer repayments later.
After Graduation
Now is the time to pay off the debts accrued during university. So, where to start tackling your loan?
Understand your HELP/ HECs Debt
HELP or HECS loan debts must be paid back and are subject to compound interest, known as indexation. The indexation rate increases yearly on June 1 and is based on inflation, meaning your loan balance grows yearly. While a degree is an investment in your future, rising costs can quickly add up alongside this annual increase, so it is best to clear your debt faster by paying more than the minimum if possible.
Understand Repayment Obligations
Repayments are only due once you earn above the set threshold of $48,361 annually. However, indexation will still accrue, meaning your loan will grow year-on-year even if you earn below the threshold. Once your income exceeds the repayment threshold, the Australian Taxation Office (ATO) will automatically deduct HEC payments.
Important Tip: If you receive Reportable Fringe Benefits in your salary package, ensure your employer is taking out HELP/HECs repayments, as this must be done manually.
Make Extra Repayments Whenever Possible
While you might not be able to pay off the entire amount before indexation kicks in, even small additional payments can help lower the balance of your debt over time. Additional voluntary repayments are a great way to take control of your debt if you have extra cash, allowing you to become debt-free faster.
Important Tip: Any payments made before 1st June will reduce the debt before the index increase is calculated.
Consider Salary Sacrifice Options
If you want to reduce your taxable income and compulsory HELP/ HECs repayment, salary sacrificing into superannuation can lower your taxable income to reduce repayments. This approach boosts your retirement savings and lowers repayments.
Seek Professional Advice
Navigating the complexities of education debt can be daunting, but you don't have to do it alone. Professional advice can help you plan to meet repayment obligations and get on top of the debt faster.
Reach Out to Us
Ascent Accounting specialises in developing personalised strategies to help manage educational HELP and HECs loan debt effectively. Reach out to our team for assistance.
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