Wednesday, July 27, 2011

HECS HELP Loan: Calculating final lump sum payment

You want to make a final lump sum payment on your loan right? I've got plenty of Googlers landing on this blog because they want to understand how much, when and where to make that final lump sum payment.

The latest budget is cutting lump sum payment discounts from 10% to 5% starting 1st January 2012. That's going to hurt for the current batch of University students and also for graduates like moi who make erratic extra lump sum repayments because there are heaps better returns on your money invested elsewhere rather than paying it off early.

A few important points about paying off your HELP loans (previously known as HECS debt):

* Lump sum payments of $500 and greater attracts the discount
* HELP loans are indexed to inflation(CPI) on 1st June every single year
* If you have spare money and wish to make lump sum payments, aim to make your lump sum payment in amounts of $500 or greater prior to 1st of June(saving yourself the indexation on that payment)
* If you plan to make a FINAL lump sum payment, ensure you pay the lump sum before you lodge your tax return so that you're applicable for the discount. If you did your tax return first, then you'll have to pay a compulsory amount which is not applicable for discounts. You can save yourself hundreds and possibly thousands depending on the final payment amount by paying that final lump sum before your lodge your tax return

If you're like me and plan to make a final payment to kiss that student loan goodbye, then I'll show you how you can calculate your final repayment:

A) My formula that you can use:

$Balance of your HECS&HELP debt /110 * 100 = $Final payout figure

B) If your final HELP loan amount is $8800 for example
$8800/110 * 100 = $8000 final payout figure (discount= $800)

C) If your final payout figure isn't a whole number, just round it up and pay the rounded up amount and any extra will be either be a refund or reduce your tax payable after you lodge your tax return.

Eg, if you HELP loan amount is $9000
$9000/110 * 100 = $8181.8181, just pay $8182 (discount =$818.20)

How you can make extra HELP repayments:

A) Call the ATO on 13 28 61 and ask them to send out your HELP debt statement with payment options
B) The statement will have a final payout figure- easy peasy
C) You can ask them for your balance and payout figure over the phone
D) You can ask the ATO for a repayment booklet which has information for payment options such as BPAY, direct credit, post office and mail payments

So before I lodge my 2010/2011 tax return, I'm going to make a final lump sum payment on my HELP loan and it will be FINIS! Time to celebrate the end of me babysitting my loan lol

Further reading on HECS/HELP debt:

1. Liabilities at tax time
2. Making a lump sum payment on my HECS/HELP loan

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