Nicole from Sydney was out with friends when she found out the federal government had made changes to the way HECS or HELP loans were indexed.

She was shocked, and not in a good way.

“My gut dropped because I’d just paid off $36,000.”

Nicole’s student debt was affecting her ability to buy her first home.

“The difference that my having a HECS debt made to my borrowing power was close to $100,000. Obviously, with house prices the way that they are at the moment, not having that extra $100,000 of borrowing capacity was the difference between me being able to buy a property and not being able to buy a property,” Nicole explained.

So, she decided to pay the debt off, using the savings she’d earmarked for her home deposit.

That payment went through on May 2, just days before the federal government announced it would tie indexation to either CPI or the wage price index (WPI), whichever was lower, and backdate the change to last year.

The change would see indexation for the previous year slashed from 7.1 per cent, to 3.2 per cent.

The tax office will apply credits to current and former students’ loans to reflect the lower rate.

Paying WPI instead of CPI on last year’s debt would have saved Nicole around $1,600. But paying it off in a lump sum means she has no tax office debt to credit.

She got in touch with Hack to find out if she’ll get any of that money back.

Do I get backpay if paid my HECS off last year?

In a word, yes.

We asked the office of Federal Education Minister Jason Clare for a bit more detail.

“Anyone who paid off their HELP loan during the year will receive an indexation credit once legislation has passed and the Australian Taxation Office (ATO) has processed the indexation credit,” a spokesperson for the minister said.

“Individuals who have fully paid their HELP loan may receive their indexation credit as a cash refund, if they have no other tax liability.”

In other words, if you don’t owe the tax office any money this year, you could be getting a nice tax return.

How do I get the credit on my loan?

The ‘credit’ — which is the difference between the amount of money you paid when the loan was calculated under CPI, versus what it is now under WPI, will be applied by the tax office automatically.

Essentially, it’ll be used to draw down your overall loan.

But if you don’t have a loan because you paid it off, like Nicole, you could get it back in the form of a return when you lodge your tax this year.

Retrospective changes ‘frustrating’

It’s important to note that only people who were subject to last year’s 7.1 per cent indexation are eligible for a credit.

Thomas from Melbourne sought advice from his accountant before deciding to raid his savings and pay off a whopping $45,000 in debt in May last year – weeks before the 7.1 per cent indexation was applied.

“I paid off prior to the 7.1 per cent indexation being applied to avoid incurring an extra approximately $3,500 being applied to my HECS debt,” Thomas told Hack.

“However, if it was known that the indexation was to be changed to be the lower of CPI or WPI, that would’ve informed my decision and I would not have voluntarily repaid, instead, retaining the sum to put towards a house deposit.”

Thomas acknowledges that the changes will be positive for a lot of people but says it’s “frustrating” that the government applied the changes retrospectively.

“How can young people best plan, financially, for the future, when the government moves the goal posts?”

Just under 3 million Australians have a HECS or HELP debt, and the federal government says lowering the rate of indexation will cost the federal budget around $3 billion in revenue foregone.

HECS and HELP indexation is applied annually, every June – and the effect of its addition is to bump up the amount owed, in line with inflation.

The 7.1 per cent rise last year, based on CPI — which the government, under the change, is now reversing – was the highest hike since 1990.