RFB and HECS - should I accumulate my HECS repayments?

Hi, I've been doing a bit of research into my financial matters, mainly because I have no idea where all my money goes. I thought I was quite saavy and knew what I was doing... evidently not after reading this forum!

I earn an ok salary, but I can salary package $16050 of it because I work for a charity. Nice I know but I still feel back at square one. Due to my salary packaging, my taxable income goes down, however due to RFB my grossed up income results in me paying a lot more of my HECS off. Because of my low taxable income each pay, the HECS compulsory repayments don't kick in. So, I've been asking my payroll to deduct what I've calculated to be the amount I will end up owing at tax time.

My question is: Would I be better off not making these voluntary contributions, but putting the $$ into a high interest savings account throughout the year to earn me interest, and only paying it to the ATO when I get my tax bill and it's due? Seems the money is just sitting there in space until tax time!

Also, if I made a voluntary repayment just before indexing happens in June, would this change my HECS repayment obligation when my tax was done? Or would I still need to pay whatever my grossed up income shows I need to pay?

 

Hi Mishka,

I paid off my HECS last year in full, as I was seeing the amount of money which was being taken out of my wage. Looking back I think I might have been better off putting the money in an investment, as HECS is basically a 3% loan from the government.

I believe you employer gets the interest on money withheld from your wage till they pay it to the ATO. So you would probably be better saving the money yourself, then at least you get the interest.

Also If you made a voluntary repayment, during the year, it only affects your HECS repayments, if you pay off the entire loan.
EG. say you owe $20,000 and and say you are going to have to pay $3000 this year (6% of $50000). If you make a voluntary repayment of $2000, you now owe $18,000 on July 1 and still have to make the compulsory payment of $3000. In which case you now owe $15,000.
The only way you can avoid the compulsory payments, is to pay of the debt in full.

I am not an expert in this, this is just what I learnt when I was paying of my debt.

Cheers,
Ash

 

Thanks Ash - that's perfect. Confirmed what I was thinking.
Cheers.