What Happens To HECS-HELP Debt Upon Your Death?
A HECS-HELP loan (which you may also know as student debt) has eased the financial burden of attending university for thousands of Australians. In fact, according to the parliamentary library, more than 2.9 million Australians have an average of $24,000 in HECS-HELP debt, and a typical student takes an average 9.4 years to repay the loan.
However, you only need to start repaying the loan once you reach a minimum income threshold, and even then, the amount you need to repay will vary depending on how much you earn. This means that for many people it might take decades for them to clear their student debt.
It is understandable then that we get many questions about what happens to your HECS-HELP debt when you die.
What is a HECS-HELP loan?
The Higher Education Contribution Scheme and Higher Education Loan Program (HECS-HELP, sometimes just shortened to HECS) is a government-backed lending scheme which loans eligible students money so they can pay for their studies when they attend university or an approved higher education provider.
Typically, the Australian government pays a portion of university fees for students enrolled in Commonwealth Supported Places (CSP). However, the leftover portion of fees, also called the Student Contribution Amount, has to be borne by the student. A HECS-HELP loan does not cover costs like accommodation, laptops or textbooks, but if you are registered in a CSP, you can cover the leftover portion of the fees, the Student Contribution Amount, with a HECS-HELP loan.
But what happens to HECS debt when you die? Do your beneficiaries inherit your debt? Or is your estate executor required to sell your property or assets to settle the debt?
No one likes to plan for their death, but it’s good to be prepared. So, read on to find the answers, as we have got some good news, for what is otherwise a sad situation.
What happens to Your HECS-HELP Debt Upon Your Death?
At the time of your death, your trustee, or if you don’t have a trustee listed in your will, an appointed estate executor that deals with assets and debts of the deceased, will file any outstanding tax returns. If your income exceeds the minimum income threshold for the year (see below), they will be obliged to make payments out of your estate for that year.
This means that, if before your death you earnt more than the minimum income threshold set by the Australian government for that year, your trustee will have to make compulsory repayments to cover the amount owing over that period.
However, any outstanding balance past your death date is waived. Which means after this payment is made, the rest of the debt is written off. In other words, neither your beneficiaries, such as your family, or your trustee will be liable to pay the rest of your HECS-HELP debt.
Can HECS Debt be Written Off?
Yes, your HECS-HELP debt will be written off upon your death. Your liability with regards to HECS debt is limited to the amount due up until the day you die. Your trustee or the estate executor will settle the outstanding amount due, and any outstanding HECS-HELP debt is written off.
Basically, what this means is that your HECS-HELP debt dies with you.
Repayments of a HECS-HELP Loan
Unlike conventional loans, the amount you need to repay on a HECS-HELP loan is based on your annual income rather than your outstanding loan balance.
HECS-HELP debt is repaid through the Australian Tax Office (ATO) once your annual income reaches the compulsory minimum income threshold repayment, even if you are still studying. For the 2021-22 income year, the compulsory repayment HECS-HELP threshold is $47,014. Which means if you earn more than $47,014 this year, the ATO will deduct a portion of your income to repay your loan. If you are earning below the minimum threshold of $47,014, you are not required to make repayments until you reach the minimum limit.
The amount you repay each year is a percentage of your income. The percentage increases as your income increases, so the more you earn, the higher your repayment will be. For example, if your annual income is between $47,014 – $54,282, the ATO will deduct 1% of it for your HECS-HELP loan repayments.
Similarly, if your annual income is between $54,283 – $57,538, the ATO would deduct 2% from your salary as compulsory repayments towards your loan on your behalf. The higher you earn, the higher the amount you’ll have to pay towards settlement of the loan. For repayment of HECS-HELP loan for the year 2021-2022, the highest threshold for annual income is $137,898. This means that if you earn $137,898 or above annually, you need to pay 10% of your income each year to repay the loan.
The ATO has a handy tax calculator to help you calculate your HECS-HELP debt repayments, just tick the appropriate box.
Although HECS-HELP loans do not accrue interest, the loans are indexed, or adjusted, on June 1 every year to keep it in line with the cost of living. Therefore, the minimum repayment thresholds and rates could change annually.
Due to the lenient repayment terms of HECS loans, banks and lending agencies do not consider them as “loans”. As a result, these loans do not affect your credit score. However, they are taken into consideration whenever you apply to borrow more money, like for a home loan. Because your HECS-HELP debt reduces the amount of money you take home, it affects your borrowing capacity, restricting the amount of money you can subsequently borrow.
Will the Rules Related to Post-death Liability Change in Future?
Funding requirements for Commonwealth Supported Places are increasing due to rising higher education costs. It may become difficult for Australian taxpayers and the government to continue subsidising higher education. In such a scenario, changes in the current HECS-HELP debt scheme can’t be ruled out.
One of the possible changes is to set conditions for write-off of outstanding HECS-HELP loans at the time of death. For example, the waiver of your outstanding loan amount after death could be abolished for those with assets valued at more than $100,000. Another proposal is to decide post-death debt waiver on household income instead of individual earnings.
While these proposals are under consideration, HECS HELP borrowers are not liable to repay their balance amount post their demise.
Conventional loans such as personal loans require you to pay the outstanding balance from your estate upon your death. However, current legislation does not require the repayment of the outstanding balance of your HECS-HELP loans from your estate after the date of your demise. Your beneficiaries, who inherit your estate, also don’t have any liability to repay your HECS-HELP debt.
If you have a HECS-HELP debt but aren’t sure how much you currently owe, you can check through the ATO either online through myGov or by contacting them directly on 12 28 61. Your myGov account will show you how much you owe and any repayments you have made.
Would you like to know more about HECS-HELP debt that may be written off upon death? Contact Fixbad Credit Finance Expert today!