What’s happening with HECS Loans following the Federal Budget release?

If you paid off your HECS debt after June 2023, you might be eligible for a cash refund from the Australian Tax Office (ATO). This follows the Government’s announcement to eliminate $3 billion in student debts by changing the way HECS debt is indexed.

What’s Changing?

The Government has revised the indexation of HECS debt, which is the annual adjustment made to reflect inflation. This change aims to mitigate the impact of last year’s unprecedented 7.1% increase, the highest since 1990, driven by high inflation. Subject to legislative approval, the new indexation rate will be the lower of the Consumer Price Index (CPI) or the Wage Price Index (WPI).

The proposed legislation will retroactively adjust the 7.1% indexation applied in June 2023 to a lower 3.2%, based on the WPI. This change means a 3.9% reduction in the indexation rate.

How Does This Affect You? 

For those who still have HECS debt, the ATO will automatically adjust your balance to reflect the new indexation rate. But if you’ve paid off your HECS debt since June 2023, you will receive a cash refund equivalent to the overcharged indexation amount.

For example, if your HECS debt was $10,000 on May 31, 2023, it would have increased to approximately $10,710 on June 1, 2023, with a 7.1% indexation. With the corrected 3.2% indexation, the debt should have risen to only $10,320. This means you were overcharged by around $390. If you have already paid off this amount, the Government will refund you the difference.

Who it affects?

This legislation ensures that all 13.6 million taxpayers receive a tax cut – an increase of 2.9 million compared to the plan proposed by Scott Morrison five years ago. Additionally, 11.5 million taxpayers (84% of all taxpayers) will receive a larger tax cut.

This means that 5.8 million women (90% of female taxpayers) will now benefit from a larger tax cut. Professions such as nursing, teaching, and truck driving are among those most likely to benefit, with over 95% of taxpayers in these sectors receiving increased tax relief.

Eligibility for Refund

The refund applies only to those who paid off their HECS debt in full after the 7.1% indexation was applied in June 2023. It does not apply to those who settled their debt before this increase.

A spokesperson for Education Minister Jason Clare confirmed that Australians who have paid off their HECS since June 2023 will receive a refund. The ATO will automatically credit the refund to the bank account linked to your MyGov account. However, if you owe any unpaid tax, the refund may be used to offset your outstanding tax liabilities.

What Now?

If you cleared your HECS debt after June 2023, expect a refund for the overcharged indexation once the legislative changes are in effect. Keep an eye on your MyGov-linked bank account for the credited amount.

If you have any questions about how this change or any of the other Federal Budget Outcomes affect you, contact our Accounting team today!