Helpful hints for paying off a HECS-HELP debt

HECS-HELP loans are designed to hold their value by keeping up with the Consumer Price Index so each year the government adds a percentage increase to the debt.

This was the highest indexation rate in more than three decades.

H&R Block tax communications director Mark Chapman said it was a good time to look at your student loan and consider ways to manage the debt.

But that was unlikely to be possible for many low-income graduates, he said.

Repayments on HECS-HELP debts are taken by the Australian Taxation Office (ATO) as a percentage of income and is compulsory.

The lowest repayment threshold is $48,361 - $55,836. People earning an annual income in this bracket pay one per cent of their earnings to their student debt.

Voluntary repayments can be made at any time to help reduce your balance in addition to compulsory payments.

If you plan to pay off a loan in total it's best to do so before lodging your tax return.

The ATO accepts voluntary repayments by credit card or BPAY and come armed with your payment reference number (PRN).

HECS-HELP debts doesn't affect your credit rating but it could affect the way potential lenders assess your credit-worthiness.

The debt could be seen as a liability or extra expense that would limit your ability to make mortgage repayments.

Paying off HECS-HELP debts could improve credit-worthiness before making a major purchase.

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Mr Chapman said tax and HECS-HELP repayments could get a little confusing for people with a few part-time jobs.

Mr Chapman said problems could occur for two-income earners - even if the taxpayer and employers follow the ATO's PAYG tax rates.

The problem arises because the tax-free threshold is applied to your first job only but any extra jobs are taxed in line with the ATO's progressive tax rates, he said.

If you are working more than one job, each employer will only withhold additional tax to cover your HECS-HELP debt based on the income that they pay you, Mr Chapman said.

"But if your combined income from multiple employers is over the minimum repayment threshold, you will still be liable to make a repayment towards your HECS-HELP debt when you lodge your tax return," he said.

If your course is directly related to your current job the costs incurred were tax deductible, Mr Chapman said.

But only if the course "maintains or improves the specific skills or knowledge you require in your current employment."

"Or results in, or is likely to result in, an increase in your income from your current employment," he said.

You can't claim a deduction for self-education expenses for a course that doesn't have a enough of a connection to your current employment even if it's generally related or helps you to get new job, Mr Chapman said.