Managing the burden of student loans
If you’ve ever been a student striving for higher education in Australia, it won't take long before the terms 'HECS loan' or 'HELP loan' are likely to come up in conversation about ways to pay education tuition fees.
Close by are the questions about, 'Should I make voluntary repayments to my outstanding HECS-HELP debt,' and even 'What happens to my HECS-HELP debt if I die?
Read in this article
- So what is HECS-HELP debt?
- The rising cost of student debt related stress
- How much HECS-HELP debt can you defer paying as a student?
- When do you need to start repaying your HECS-HELP debt?
- How is HECS-HELP debt calculated?
- How does HECS-HELP debt affect applying for a mortgage?
- Should I make voluntary repayments on my HECS-HELP student loan debt?
- Is my HECS-HELP debt still repayable after I die?
- FAQ's
- So, my executor has to deal with this? What exactly is their responsibility?
- What happens if there isn't enough money in the estate to cover the final compulsory repayment?
- Is this different from other debts like credit cards or a mortgage?
- Does the situation change if I'm an Australian citizen living and working overseas when I die?
- My parents want to pay off my HECS-HELP debt for me to "clean things up" before I inherit. Is this a good idea?
- Sources & Further Reading
So what is HECS-HELP debt?
HECs is a financial arrangement started in 1989 that was later replaced by the HELP scheme in 2005 and provides loans to students studying approved higher education courses. These government-sponsored deferred payment schemes allow students to defer the costs of tuition until their taxable income reaches a certain level, at which annual repayments commence.
The rising cost of student debt related stress
The rising costs of higher education costs, coupled with the stress of repaying student loans are putting increasing pressure on students and their families.
For some, student loans are delaying retirement and even leading young people to delay getting married and having children.
How much HECS-HELP debt can you defer paying as a student?
Full fee-paying tertiary education students do not receive direct government assistance for the cost of their education, while other students can defer payment of their tuition fees, by using a government-sponsored HECS-HELP student loan.
- The lifetime limit for deferring student tuition costs is currently $150,000 for medicine, dentistry, and veterinary science programs, and $104,440 for all other programs.
When do you need to start repaying your HECS-HELP debt?
The HECS-HELP student debt is not like most types of debt. This is because:
- repayments are based on your income level, not the remaining balance of the debt
- you only start repaying it once you earn over the HECS-HELP debt repayment threshold
- the minimum debt repayment threshold before you're required to make a debt repayment is currently $51,550, for the year 2023-2024
- when your income exceeds this threshold, a compulsory repayment of at least 1% of your income is raised in your income tax assessment, and
- there is no interest charged (besides the rate of inflation adjustments)
How is HECS-HELP debt calculated?
The debt level is adjusted annually by the inflation-linked indexation rate.
It's important to note that deferring the repayment might seem like an immediate relief, but it can also mean paying more in the long run due to the indexation applied to the loan. In practical terms, it's worth thinking through what your plans are for the future of your money and whether you should make additional repayments.
Insight: The government is currently owed $55 billion by people who have accessed the Higher Education Loan Program (HELP), and approximately $20 billion of that debt is forecast to be written off.
How does HECS-HELP debt affect applying for a mortgage?
Getting a home loan involves calculating all your compulsory debt obligations, and its effect on your remaining cash flow and ability to service any new debts. This includes any HECS-HELP annual repayments.
- HECS-HELP usually doesn’t count as a loan when you borrow money – only the impact on your income after repayments is considered by a bank.
Should I make voluntary repayments on my HECS-HELP student loan debt?
The answer is, 'it depends'.
While it always depends on individual circumstances, it's likely that you should only voluntarily repay HECS-HELP loans if;
- You have no other debt now, and
- You will not incur other debt in the future.
In almost all cases, the rate of interest payable on most consumer loans is higher than the CPI as evidenced by how the RBA has responded to an increase in the CPI – where they have increased interest rates as a response.
- Remember, too, that personal debt such as a home loan needs to be paid using after-tax money.
- As a result, debts other than HECS-HELP loans will almost certainly be more expensive than the HECS-HELP loan.
It almost always makes sense to repay or avoid the most expensive debt first. This usually boils down to younger University graduates choosing not to make extra repayments and older graduates, who may have paid off their home loan, for example, might think about using any savings to avoid their HELP debt being increased by inflation each June 1.
Pro Tip: Under the current rules, if you die with a HELP debt outstanding, the debt dies with you. And for the self-employed, there is an additional consideration: If you’re self-employed declared income does not pass the annual assessment threshold, you won’t incur a repayment.
So, if you want to maximise your kids’ inheritance, perhaps don’t make any extra repayments.
If you’re an older person and you have a HECS-HELP debt, then gifting any saved money to your kids so they can reduce how much they have to borrow will reduce the amount of interest that the family ‘loses’ to interest.
Is my HECS-HELP debt still repayable after I die?
Here is the good news for your beneficiaries and the executor of your Will.
- Once you are up-to-date with any annual compulsory repayments, after you die the balance of the HECS-HELP debt is extinguished.
The executor of your Will lodges all outstanding tax returns. This is up to the date of your death. If the Notice of Assessment (for that tax year) includes a compulsory HECS debt repayment, your Executor pays it out of your estate. Apart from that, the balance of the HECS debt is automatically written off by the government. This is good news for your beneficiaries.
All this adds up to one conclusion: the circumstances in which it makes sense to make a voluntary repayment are still quite rare. An interest-free Government loan is usually the last one to be repaid.
Everyone's personal circumstances, plans, and financial position are unique so get professional advice (and yes we'd love to help you out with that).
FAQ's
Your HEC and HELP Debt Obligations Questions, Answered. Here’s a quick summary of what you need to know about, What happens to my government HECS or HELP Debt when I die?
So, my executor has to deal with this? What exactly is their responsibility?
That's a great question, and it's a really important one for the person you nominate as your executor. Their responsibility isn't to pay your HECS-HELP debt in the way they'd pay a credit card bill. Instead, their key duty is to lodge your final tax return with the Australian Taxation Office (ATO).
The ATO then calculates if you earned enough income in your final year of life to trigger a compulsory repayment. If you did, your executor pays that specific amount from your estate's funds. After that single final payment is made, the ATO cancels the rest of the debt completely. Your executor's job is simply to follow the official process, not to pay off the loan itself.
What happens if there isn't enough money in the estate to cover the final compulsory repayment?
This is a common concern. The simple, reassuring answer is that the debt does not get passed on to anyone else. Not to your executor, not to your spouse, and not to your children.
A HECS-HELP debt is a unique type of government loan. If the estate has no funds left after paying other higher-priority debts (like funeral expenses), then the ATO simply cannot collect that final compulsory repayment. The debt is still cancelled, and your family is not left with the bill.
Is this different from other debts like credit cards or a mortgage?
Yes, absolutely—and this is a crucial distinction to understand in estate planning. Unlike a HECS-HELP debt, commercial debts like credit card balances, car loans, and mortgages are significant liabilities of your estate. Your executor is required to use your estate's assets to pay off those debts in full before any inheritance can be distributed to your beneficiaries.
The fact that your HECS-HELP debt is effectively cancelled upon death makes it one of the "best" kinds of debt you can have.
Does the situation change if I'm an Australian citizen living and working overseas when I die?
The core principle remains the same: the Australian Government will cancel your remaining HECS-HELP debt. However, your executor's job might be slightly more complex. They will still need to notify the ATO of your death and finalise your Australian tax affairs.
Under the current rules, you are required to declare your worldwide income to the ATO while living overseas. Your final compulsory repayment would be calculated based on that income. But once that final lodgement is complete, the debt is cancelled just as it would be if you were living in Australia.
My parents want to pay off my HECS-HELP debt for me to "clean things up" before I inherit. Is this a good idea?
Everyones personal situation is different so get professional advice. While the intention is good, from a purely financial and estate planning perspective, it's generally not a strategic use of funds. Think of it this way: you're using perfectly good money to pay off a loan that the government is prepared to forgive entirely when you pass away.
That same money could be used to pay down a non-cancellable debt (like a mortgage), invested for your future, or simply passed on as a larger inheritance later. While clearing any debt can feel good, paying off a HECS-HELP debt is often like paying for something you were eventually going to get for free.
Sources & Further Reading
- Study Assist: Loan Repayments - The official Australian Government guide, confirming any remaining HECS-HELP debt is cancelled upon death.
- ATO: Checklist for Deceased Estates - The Australian Taxation Office's official process for executors lodging a final tax return where a last compulsory repayment is calculated.
- ATO: Repayment Thresholds and Rates - The official income thresholds used by the ATO to calculate compulsory HECS-HELP repayments.
Call us today on 1300 137 403 or email us here for a no-obligation private chat about your situation.
Drew Browne is a specialty Financial Risk Advisor working with Small Business Owners & their Families, Dual Income Professional Couples, and diverse families. He's an award-winning writer, speaker, financial adviser and business strategy mentor. His business Sapience Financial Group is committed to using business solutions for good in the community. In 2015 he was certified as a B Corp., and in 2017 was recognised in the inaugural Australian National Businesses of Tomorrow Awards. Today he advises Small Business Owners and their families, on how to protect themselves, from their businesses. He writes for successful Small Business Owners and Industry publications. You can read his Modern Small Business Leadership Blog here. You can connect with him on LinkedIn. Any information provided is general advice only and we have not considered your personal circumstances. Before making any decision on the basis of this advice you should consider if the advice is appropriate for you based on your particular circumstance.
