Lets Talk About HECS

Lets talk about HECS baby.

For part 2 of our salary packaging series, lets talk about HECS.

HECS debt is understandably a major concern for any student. The average University student in Australia faces anywhere between $25,000 – $40,000 yearly in fees, depending on the degree and level of study.

However, through HECS you don’t have to start repaying that until your income reaches the current threshold amount of $55,874 for the 2017-2018 financial year. Once your income reaches this point, it is compulsory to start paying back your student debt at a rate of 4% of your income.

So, how can salary packaging help?

Salary packaging your HECS debt can actually help to save you money. Again, lets look at Susies situation.

Susie earns $80,000 per year, which puts her in a higher HECS repayment bracket of 6%.

If we break it down we can see that Susies HECS repayments actually increase from $4800 to $6145.30. This is based on a $100,000 HECS debt. This in turn actually brings her annual salary down as well.

Annual Finances

WITHOUT salary packaging

WITH salary packaging

Gross Salary

$80,000.00

$80,000.00

Amount Packaged

$0.00

($9,010.00)

FBT

$0.00

$0.00

Administration Fee

$0.00

($220.00)

Net Salary

$80,000.00

$70,770.00

Input Tax Credits

$0.00

$20.00

Net Salary After Input Tax Credits

$80,000.00

$70,790.00

Tax & Medicare

($19,146.68)

($15,969.23)

Net Salary After Tax and Medicare

$60,853.32

$54,820.77

HECS/HELP Repayment

$4,800.00

$6,145.30

Net Salary after HECS/HELP Repayment

$56,053.32

$48,675.47

Amount Packaged

($9,010.00)

$0.00

Cash Salary

$47,043.32

$48,675.47

Net Benefit

$1,632.15

After deducting everything we can see that choosing to salary package her HECS debt has meant Susie is now able to save $1,632.15 yearly on TAX. That’s extra money in her pocket, while being able to pay off her HECS sooner.

So, the verdict? I believe salary sacrificing your HECS as soon as you can comfortably afford it is a great way to both save you a little extra money, and clear your debt sooner. After all, no one wants to be lugging around a huge amount of debt for years.

If you are currently experiences financial hardship, or need any advice on anything else finance related, I encourage you to follow this link and join my free Facebook community.

Design your own future

Disclaimer: I am not a financial adviser and this should not be taken as specific financial advice. This is general financial advice only. 

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