HECS/HELP Repayments as a Sole Trader: Insights and Tips

What is a HECS/HELP Debt?

HECS (Higher Education Contribution Scheme) and HELP (Higher Education Loan Program) are terms used in Australia to refer to student loans taken out to fund higher education studies. The government offers these loans to eligible students, providing them with the means to pursue their academic dreams without upfront payment of tuition fees. 

As a sole trader, if you pursued higher education at a university or an approved higher education provider in Australia, you might have accumulated a HECS/HELP debt during your studies. The average HECS debt was $26,494 in the 2022–2023 fiscal year. The Australian Taxation Office (ATO) manages the debt and is an integral part of your financial obligations. 

Do I Need to Pay HECS/HELP Debt as a Sole Trader?

Yes, as a sole trader with a HECS/HELP debt, you must make repayments. The repayment threshold is currently set at $51,550 for the 2023-24 year, and once your income reaches the threshold, you'll need to start repaying a portion of your debt through the tax system. If you are running a business, you should keep a portion of your income over the $51,550 set aside for your end-of-year tax return, as this is when your repayments will be calculated. The repayment system is designed to be fair and progressive, ensuring that those who earn more contribute more to their student debt. It's important to remember that the repayment amount is relative to your income. 

How Do I Pay My HECS/HELP Debt?

Repaying your HECS/HELP debt as a sole trader is relatively straightforward. As your income tax return is filed annually, the ATO will calculate the amount you must repay based on your income for that financial year. The repayment amount will be included in your tax assessment. The ATO will automatically deduct the relevant amount from your taxable income. This means you don't need to make separate payments or take extra steps; it's seamlessly integrated into your tax obligations. 

Why Does My HECS/HELP Debt Go Up?

You might notice that your HECS/HELP debt increases. This can be due to a few reasons: 

• Indexation: Each year, your HECS/HELP debt is adjusted in line with the Consumer Price Index (CPI). This ensures that the debt keeps up with inflation, maintaining the real value of the debt. 
• Interest: Unlike traditional loans, HECS/HELP debt doesn't attract interest, it is indexed, and the government has recently announced that debt obligations will be indexed at 7.1% to match the CPI.
• Repayment Income: If your income exceeds a certain level, you might face a higher repayment rate. This can lead to a slower decrease in your debt or even a temporary increase if your earnings significantly surpass the threshold. 

How Can I Check How Much HECS/HELP Debt I Have?

Keeping track of your HECS/HELP debt is crucial to stay on top of your financial situation. Thankfully, the ATO provides an effortless way to check your debt balance. Log in to your myGov account, link it to the ATO, and you'll have access to all the details regarding your HECS/HELP debt. 

Does HECS/HELP Debt Affect My Credit Score?

Your HECS/HELP debt does not directly impact your credit score. Since it's a government-backed loan, it's not considered a debt like a loan from a private financial institution. Therefore, it won't be reported to credit bureaus and won't affect your creditworthiness. 

However, it's essential to remember that managing your finances responsibly, including your HECS/HELP debt, will indirectly influence your credit score. Timely repayments and staying on top of your financial commitments demonstrate good economic behaviour, positively reflecting your creditworthiness. 

As a sole trader managing your business and personal finances, it's essential to understand and manage your HECS/HELP debt responsibly. Remember that as a sole trader, you are required to make repayments based on your income. The process is integrated into your tax obligations, making it convenient to stay on track. 

Your HECS/HELP debt might go up due to indexation and certain income thresholds, but don't let that deter you from pursuing your entrepreneurial dreams. Keeping an eye on your debt balance is easy through the ATO's online platform. 

Finally, rest assured that your HECS/HELP debt won't directly impact your credit score, but maintaining financial responsibility in all aspects of your life is a smart move. As you grow your business and work towards your financial goals, staying informed and proactive will help you successfully manage your HECS/HELP debt.