What currently happens to your HECS debt when you die?

HECS debt is not like most types of debt;

  1. You only start paying it off once you earn over the repayment threshold (Currently $51,957)
  2. Your repayments are based on your income, not the remaining balance
  3. There is no interest (Besides rate of inflation adjustments)
  4. It doesn’t count as a loan when you borrow money – only the impact on your income after repayments is considered by a bank
  5. Your debt is written off when you die!

The executor to your estate will lodge all outstanding tax returns up to the date of your death, and if the notice of assessment includes a compulsory HECS debt repayment then that must be paid out of your estate. Apart from that, the rest of the debt is written off!

Why are changes being proposed to the HECS Debt scheme?

The cost of higher education is rapidly escalating and increasing the burden on Australian tax payers. Since 2009, taxpayer funding for Commonwealth supported places in higher education increased by 59%, approximately twice the rate of growth in the economy. According to leading higher education analysts, removing the complete write-off of HECS debt on estates over $100,000 could save up to $800 million a year.

Prime Minister Malcolm Turnbull and the Minister of Education Christopher Pyne have recently floated the idea that the government should treat HECS debt as they would any other unsecured debt such as a personal loan or credit card debt. This will mean that, if the estate is valued at $100,000 or more, the full, unpaid HECS balance must be paid from the deceased estate before the assets are distributed amongst beneficiaries.

While this has proved to be an extremely controversial topic, it is just one of several options being considered in an effort to reduce the higher education deficit, so the proposed changes put forward may not come into action.

Another suggested solution is to tie HECS debt to household income levels, rather than personal income. This is because there are many instances where one partner works only part-time and earns less than the $54,869 repayment threshold, therefore avoiding paying off their accrued HECS debt.

What will be the impact if it goes ahead?

It has been assumed that the most likely to be affected by collecting the full debt  from a deceased estate will be the relatively affluent dual-earner couples mentioned above and their beneficiaries. The partner earning less than the threshold for the remainder of their life who would have originally avoided these loans all together, would now have the full balance taken from their estate.

HECS debt repayment after death and other proposals to mend the effects of increased tertiary education costs are certain to remain the subject of controversy, with perhaps a larger re-examination of the balance between private and public contributions to these costs.

The lawyers at Owen Hodge are following these developments closely and would be able to assist you with any questions you have about the proposed changed to HECS or any aspect of your legal and financial plans. Please contact us at 1800 770 780 or email us at OHL@owenhodge.com.au