When you attend university in Australia, you can apply for a HECS-HELP loan to help pay for your education. But what happens to my HECS debt if I die and do I have to talk to a Will and estate lawyer to include HECS repayments in my Will?
Keep reading to learn more about HECS debts and how they impact deceased estates.
- How does HECS work?
- What happens to my HECS debt if I die?
- Why are changes being proposed to the HECS debt scheme?
How does HECS work?
HECS debt is not like most types of debt, because:
- You only start paying it off once you earn over the HECS-HELP debt repayment threshold (currently $45,881 for the 2019-20 financial year).
- Your repayments are based on your income, not the remaining balance.
- There is no interest (besides the rate of inflation adjustments).
- It doesn’t count as a loan when you borrow money – only the impact on your income after repayments is considered by a bank.
- Your HECS debt is written off when you die!
So, what happens to my HECS debt if I die?
The executor of a Will 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 taxpayers. Since 2009, taxpayer funding for Commonwealth supported places in higher education has 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.
In 2019, a plan to recover the student debts of people who have died was under consideration by the Federal Government. They estimated this move would save taxpayers up to $46 million over a decade. However, the government acknowledged that this move would be controversial, and eventually rejected the proposal.
Presently, the government is owed $55 billion by people who have accessed the Higher Education Loan Program (HELP), and approximately $20 billion of that debt is forecast to be written off.
As mentioned and under the current law, if a person doesn’t pay off their HECS/HELP debt before they pass away, that debt is wiped. As of 2019, the Government has written off the student debts of 9,000 people, and a further 18,000 people with student debt are expected to die over the next 10 years.
If this goes ahead, will it impact what happens to my HECS debt if I die?
It’s assumed that those most likely to be affected by this proposed change (collecting the full debt from a deceased estate), will be the relatively affluent dual-earner couples and their beneficiaries. Originally, the partner earning less than the threshold for the remainder of their life who would have avoided these loans altogether. But with this proposed change, the full balance would be taken from their estate.
Not only this, but the administrative burden for the ATO would also be significant, with an estimated cost for the proposal at $12.4 million initially over the first five years to set up, with ongoing costs of $2 million per year after that.
HECS debt repayments after death and other proposals to mend the effects of increased tertiary education costs will remain a subject of controversy – especially with a larger re-examination of the balance between private and public contributions to these costs.
The personal lawyers at Owen Hodge are following these developments closely and would be able to assist you with any questions you have about the proposed changes to HECS or any aspect of your legal and financial plans. Please contact us at 1800 770 780 or email us at [email protected] if you have similar questions to “what happens to my HECS debt if I die?”.
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