Nick Bruining Q+A: How a HECS or HELP student debt affects your odds of buying your first home

Question

I have a HELP debt of a little over $53,000 and was very happy to hear about the changes to the indexation of student debt announced by the Federal Government last week.

I earn $94,000 a year and have decided that buying a house in the current market is not for me, so I will wait.

With an inheritance I have a little over $85,000 saved.

Should I use some or all of the money to repay some of the HELP debt? Are there any disadvantages in this plan?

Answer

HELP, HECS and a range of other Federal Government loans to support education and training have a unique repayment arrangement where no interest is charged, yet the total loan balance is indexed each year on June 1.

Whereas previously, the indexation figure was a complicated calculation using the change in the consumer price index over the previous two years, the new arrangement sees the outstanding loan amount indexed to the lower of either the CPI rate or the wage price index value.

The WPI data used will be released on Wednesday, but is expected to be lower than the CPI value. Some expect the WPI figure to be about 4.3 per cent instead of the CPI value of 4.7 per cent.

Importantly, and subject to passage through Parliament, the Government plans to retrospectively apply this new policy to the last indexation date of June 1, 2023. This means that your current HELP debt is likely to decline by a small amount.

Mandatory repayments administered by the ATO are linked to an adjusted taxable income figure which includes your gross salary plus net investment losses (for example, negative gearing), voluntary concessional super contributions and reportable fringe benefits.

On an income of $94,503 or above for the 2025 financial year, your HELP repayments will be 5.5 per cent of your gross income — or about $5198 a year. While it is based on your pre-tax income, you pay it with after-tax income.

These repayments, and any additional voluntary repayments you make, are not tax deductible.

When you eventually decide to purchase your new home, the outstanding HELP debt and the mandatory repayments will be factored into your loan application to determine your net wealth position and your ability to service the loan.

For that reason, reducing or getting rid of the debt will definitely assist your “attractiveness” to lenders.

One consideration, however, might be the value of the home and your deposit at that time. Ideally, the closer you are to a position where the deposit is 20 per cent of the total home price, the better off you will be.

This probably means a lower lenders mortgage insurance premium, or perhaps no insurance at all.

Question

I am an early retiree aged 63 and am confused about what concessions are available to me.

While some people tell me I can get a State seniors card now, others tell me that it only comes with a pension card when I reach 67.

Can you please clear up the confusion.

Answer

The WA State Seniors Card is a concession card issued to anyone over the age of 65, is a WA resident and works less than 25 hours a week.

The confusion may have arisen over the previous eligibility age of 60, but this has been increasing every two years since a policy change in 2016. Now, anyone born after July 1, 1959 needs to be 65.

The only concession card that may be available to you at this stage is the Centrelink-issued Low Income Health Card.

This card is issued when weekly income is less than $769 for singles or a combined $1315 for couples. Once you receive the card, income can increase by up to 25 per cent before it must be handed back.

The income calculation includes pre-tax wages, net rental receipts and the deemed income of your financial investments.

Nick Bruining is an independent financial adviser and a member of the Certified Independent Financial Advisers Association