The federal government announced significant changes to the indexation rate for tertiary education loans, including a retrospective adjustment for the previous financial year. This means that individuals with student debts from that period could either receive a credit on their remaining balance or a refund. However, if you have already completed your tax return or checked your HECS balance, you might have noticed that no changes have been applied yet. Here’s why.

The legislation required to implement these changes has not yet been approved by parliament, so the old legislation remains in effect. There is no concern that the new legislation won’t be passed; it’s simply a matter of timing. Unfortunately, this delay means that the legislation missed two key deadlines:

• June 1: The date when the indexation rate is applied.

• July 1: The beginning of the new financial year.

The indexation rate day is crucial because it is when indexation is automatically applied to loan accounts. Since the old legislation was still in effect on June 1, the old indexation rate was applied. The new financial year is also important because it marks the period when people can file their tax returns for the 2023-24 year. HECS payments deducted from pay cheques throughout the year are not officially applied to accounts until the tax return is filed. Therefore, if individuals with student debts have already filed their tax return or do so before the new legislation is approved, it will reflect the old indexation rate.

Understanding the HECS Indexation Rate

The HECS indexation rate should be 4%, but because the legislation hasn’t passed yet, it remains at the old rate of 4.7%. Here is a comparison of the current and new rates:

When Will the New Indexation Apply?

The exact timing of the new indexation is still uncertain, but it is not expected to happen for at least a month. For legislation to become law, it needs to be approved by both the House of Representatives and the Senate in federal parliament. Currently, parliament is on its mid-winter break, with no sittings until at least mid-August. The government expects the legislation to be introduced later this year, but no specific timeframe has been provided.

Will I Get a HECS Credit or a Refund?

If you completely paid off your HECS debt before the indexation applied on June 1 last year, you will not receive a credit. However, if you had a HECS debt that was indexed on June 1 last year or this year, you will receive a credit. This credit will be deducted from the amount you still owe. Once the legislation is passed and the new indexation rates apply, your HECS debt should decrease. If you have already paid off your HECS debt, the credit will become a tax credit. If you have an ATO (Australian Taxation Office) or Commonwealth debt, the credit will be deducted from the amount you owe. If you filed your tax return and do not have a tax bill, the money will be paid out as a refund.

How Will the Credit Be Applied?

The credit will be automatically deducted from your HECS account once the legislation is passed. The ATO will handle this process, and individuals do not need to take any action other than ensuring their bank account details are up to date with the ATO. People will be able to view their credit on their ATO Online account once it is calculated. General communications are being planned to inform people how to view their credits.

How Will I Get My HECS Refund?

The refund should be paid directly into the bank account you have registered with the ATO. The exact timing of the refunds is still unknown. The ATO has stated that, as the legislation is not yet passed, they cannot comment on the timing of any credits. You should lodge your tax return as normal. Depending on when the change occurs, any refunds resulting from the indexation reduction are likely to be sent separately from tax return refunds.

How Do I See My HECS Balance?

The easiest way to check your HECS balance is via MyGov, a digital portal that links people to their accounts for government services like the ATO and Medicare. If you don’t have a MyGov account, you can create one online. To see your HECS balance, you will need to link your MyGov account to the ATO. Once linked, you can access your HECS balance by selecting the “services” button, then the Australian Taxation Office button, and scrolling down to the “Loan accounts” section. If you have a student debt, you should see a line under the “description” heading that says, “higher education loan program (HELP).” The dollar figure under the “balance” heading is how much you still must pay off.

When Is My Tax Return Due?

If you are filing your tax return yourself, it is due by October 31. If you are using an accountant, the deadline is May 15 next year. However, you need to engage with an accountant before October 31, so keep that in mind.

Why You Won’t See a HECS-HELP Credit in Your Tax Return

Australians with student loan debt should not expect to see a HECS or HELP loan credit on their tax returns in the coming weeks. In May, the federal government announced changes to the way student debt is indexed, which is expected to remove around $3 billion worth of debt for more than three million current and former students. Traditionally, student debt balances have been indexed in line with the Consumer Price Index (CPI) on June 1 each year. However, in June 2023, when inflation was just over its peak, the indexation rate was 7.1%, the highest figure in decades. This was seen as another blow to many young Australians already dealing with soaring living costs.

In response, the government proposed changing the indexation calculation to ensure balances increase in line with the lower of the Consumer Price Index or the Wage Price Index (WPI). This change would also apply retrospectively from June 1, 2023, meaning all debts in existence at that point would be indexed at a rate of 3.2% rather than 7.1%, while the annual indexation rate for this year would be 4% rather than 4.7%.

How Much Will the Indexation Changes Save You?

The indexation reforms are likely to have a noticeable impact going forward, and because they will be backdated, people with current student debts (or debts that existed in June 2023) will also be eligible for a credit. For example, the government estimates that someone with an average student loan balance of $26,500 will receive a credit of approximately $1,200. Here are some estimated HECS-HELP credits based on different balances:

‍When Will the Credits Be Applied?

The exact timing of when people with an existing HECS-HELP debt will see a credit is still unknown. Some may have expected to see a credit on their tax returns soon, but because the indexation reforms need to be legislated before they can take effect, the timing remains uncertain. The ATO will automatically apply a credit to current HECS-HELP borrowers’ accounts to reflect the lower 3.2% indexation rate once the legislation is passed. Those who have paid off their student debt since June 2023 will receive a refund from the tax office if they do not have any other tax-related debts.

The changes to the HECS indexation rates are expected to provide significant relief to many Australians with student debt. While the exact timing of these changes is still uncertain, the government is working to ensure that the new rates are applied as soon as possible. In the meantime, it is important to stay informed and ensure your bank account details are up to date with the ATO to receive any credits or refunds you may be entitled to.

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