If you want to study to further your qualifications in Australia, then you may find courses which offer a VET FEE-HELP loan. We came across it while finding a suitable RG146 course to study. We did not enroll with this option, but we decided to have a streetonomic look at VET FEE-HELP
What is VET FEE-HELP
VET stands for Vocational Education and Training. To qualify for VET FEE-HELP, you need to be an Australian Citizen, or a permanent humanitarian visa holder. VET FEE-HELP, is a loan scheme which helps eligible students pay tuition fees for approved higher level VET qualifications. It is offered through the state government for specific courses (which may change from state to state). It is only available to fee paying students. Applicants can choose to pay either all or part of their tuition fees through a VET FEE-HELP loan. Eligible courses must be through an approved provider and include:
- Advanced Diplomas
- Graduate Certificates
- Graduate Diplomas
- Certificate IVs (currently available on trial basis in some states)
How Much Can You Borrow?
The FEE-HELP limit is adjusted on January 1st every year. For 2015, the limit is $97,728. This limit is calculated by the total amount of FEE-HELP you have used for all your studies, and is not offset by repayments. Once you have reached the limit, you can not borrow any more. Before you apply for VET FEE-HELP, you will need to confirm that you have a sufficient FEE-HELP balance available.
What Are The Costs of VET FEE-HELP
There is an upfront fee of 20% charged on VET FEE-HELP loans. This fee is not included in your VET FEE limit, but does increase the amount that needs to be repaid. In some cases this fee can be waived for eligible subsidised students.
There is no interest on HELP Debts, but the balance is indexed annually based on the CPI rate. If a loan is more than 11 months old, then it will be indexed annually on June 1st every year. The indexation rate charged in June 2014 was 2.60%
How is the Debt Repaid
The loan will form part of your accumulated HELP Debt. The minimum repayment is determined by how much taxable income you earned for the financial year. If you earn less than $53,345 for the 2015 tax year, then there is no compulsory repayment. If you chose to pay more than the compulsory minimum, then you will receive a bonus of 5% for any voluntary payments made above $500
The HELP-FEE repayment rates for the 2015 financial year are shown in the table below:
A Hypothetical Case Study
We have assumed that indexation and payment rates remain at their current levels and have looked at a 3 year outlook for someone who becomes a financial planner using VET FEE-HELP. We assumed that only the minimum compulsory payments are made. The minimum payments were calculated with our VET FEE Calculator
Let's say that in February 2015, we enroll in the RG146 course which costs $14,000 and is available through VET FEE-HELP. They say the course will take 1 year to complete and the fee is payable upfront. If we borrowed the full $14,000, there would be an upfront charge of $2,800 (20% of the loan). This would give us an initial loan balance of $16,800
Assuming that our income was below the minimum threshold for the financial year while we were studying, there would not be any repayments made in this financial year, and the balance would remain at $16,800.
If we use the current indexation rate of 2.60%, then in financial year 2016, the debt will be $17,236. As a first year financial planner we might earn $55,000 for the year, we'd make a minimum repayment of $2,200, leaving us with a balance of $15,037 to be carried into the 2017 financial year.
In 2017, our debt would again be indexed (we assume at 2.60%), so the balance would grow to $15,428. If we earned $65,000 in our second year of financial planning, we would make a minimum payment for the year of $2,925, leaving us with a carry over debt of $12,503 to be carried into the 2018 financial year
After indexation in 2018, our balance would be $12,828. This means that three years after studying, we have made repayments of $5,125, and still owe almost $13,000 for a course which cost $14,000 in upfront fees. The good news is that the upfront fee has been paid off, so from this point, the balance will reduce at a faster rate.
Should You Use a VET FEE-HELP Loan?
If you can afford to pay upfront, then this will always be a better option, however if you need to borrow the funds, then this would be cheaper than most other lending options.
Like all debt, there is a financial risk that it can get out of control. you need to be careful and be aware that while you are not repaying it, the balance will grow. Those most at risk are those with lower incomes who can least afford to be in debt.