Good news for those with study and training loans!
A recent change in how indexation is applied to HELP and HECS debts aims to ease financial pressure for borrowers.
The bill introducing these changes has received Royal Assent, with the new rules retroactively effective from 1 June 2023.
Here’s what you need to know about the changes and how they might affect you or your clients.
What’s Changing?
The annual indexation for HELP and HECS loans is now determined by comparing two key economic indicators:
- Consumer Price Index (CPI)
- Wage Price Index (WPI)
Indexation will be based on the lower of these two rates, helping to minimise the annual increase in student loan balances.
Impact of the Change
- For the 2023 financial year, indexation was reduced from 7.1% to 3.2%.
- For 2024, it was reduced from 4.7% to 4%.
This adjustment is particularly significant, as it shields borrowers from the full brunt of inflation-driven debt increases.
Refunds for Over-Indexed Loans
For those whose study or training loans were indexed in the last two years, the government recalculates the excess amounts and recredits them to borrowers’ accounts.
Here’s what will happen:
- If the recalculation results in a credit balance on the study or training loan account, this will first be applied to any outstanding tax or Commonwealth debts.
- Any remaining balance will be refunded to the nominated bank account on file.
What You Need to Do
In most cases, borrowers don’t need to take any action. The government is automatically reciting the excess amounts. For most, these adjustments should have been reflected by the end of January, though more complex cases may take additional time.
If you’re a tax professional managing clients’ finances, note that:
- If a refund is issued to an account you manage, you’ll need to reconcile that amount.
- The government cannot provide a preemptive list of who will receive a refund until all recrediting is processed.
A Win for Borrowers
This change represents a positive step toward ensuring study and training loans are more manageable, especially during periods of high inflation. By tying indexation to the lower of CPI or WPI, borrowers can expect slower growth in their loan balances, giving them a better chance to pay off their debts sooner.
For further details, consult your tax professional or contact the ATO.
