If I understand correctly, indexation of our HELP loan balance is only applied once a year and to a balance that is essentially a year old, disregarding the compulsory HELP payment deducted from our salary periodically since a year ago. If this is correct it is taking money from someone and withheld it for a year with no interest, and then index them on a balance that is essentially not the correct balance. Why is there no offset mechanism in place. I wonder how is that fair? How much savings the student loan population stand to gain if repayments are rolled into HELP loans every month, to yield and updated balance owing? Even with indexation occurring every month instead of yearly. Think about power of compounding in reverse...
Further shortcomings is illustrated in a case whereby someone has paid off their remaining balance say in November 2021, but their HELP loan balance will be as of 30 June 2021, and indexation happens in early June 2022 before ATO acknowledge repayments, which mean that person will endure another round of indexation before the HELP Loan is settled.
Imagine if you pay your mortgage every month, but the bank will not credit your loan balance until the end of the year. And right before they credit your loan balance they apply the full year interest rate to your beginning of the year balance. I think the royal commission will have another field day. The ATO officer I asked this question response was its 'indexation' not 'interest', that ATO should not be compared to a bank... and the indexation mechanism is in place as per legislation. But the fundamentals of finance (or mathematics if you will) are the same. It disadvantage the payer, the public. And I wonder shouldn't we hold our ATO, our legislators to higher standards than banks, to put in place mechanisms that is fair and just? Perhaps savings of one person is not groundbreaking, but collectively the public can stand to save a lot of money if our HELP loan payments are credited to our loan regularly even with indexation applied more regularly to a 'live' balance.
I just can't understand why the indexation mechanism is in place the way it is... regardless what the name is, its a percentage applied to a loan balance. In this case the balance is a year old...
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