Changes to Study and Training Loan Indexation: What You Need to Know

Big news for students or training loans! Parliament has passed a bill that significantly changes how annual indexation is calculated for these loans. Starting from 1 June 2023, indexation will be determined by the lower Consumer Price Index (CPI) or the Wage Price Index (WPI), offering borrowers some relief. Let’s dive into what this means for you or your clients and how to manage the upcoming changes.

Key Changes at a Glance

  • New Indexation Rates:
    • For 1 June 2023: Reduced from 7.1% to 3.2%.
    • For 1 June 2024: Reduced from 4.7% to 4%.
  • Backdated Adjustments: The new rules apply retroactively starting 1 June 2023.

What Happens Next?

The Australian Tax Office (ATO) is already recalculating excess indexation amounts for borrowers with study or training loans. Here’s how the process works:

  1. Recrediting Loans:
    • Any excess indexation amounts are being directly re-credited to affected loan accounts.
  2. Transferring Credits:
    • If a loan account is in credit after the adjustments, the excess will be moved to the borrower’s Income Tax account.
    • This credit can be used to offset other primary tax or Commonwealth debts. Any leftover amount will be refunded to the borrower’s nominated bank account.
  3. Refund Timelines:
    • Most borrowers will see their credits reflected by January 2025, though some cases may take longer depending on complexity.

Action Required for Borrowers

Although borrowers don’t need to take any action to benefit from the adjusted indexation rates, there are some important steps they can take to streamline the process:

  1. Update Bank Account Details:
    • Ensure your financial institution account details are current to receive refunds promptly.
    • Borrowers can update their details via their myGov account linked to the ATO.
  2. Agent-Managed Accounts:
    • If a tax agent’s bank account is listed as the nominated account, refunds will go to the agent. Agents will need to reconcile these amounts and pass them on to their clients.
  3. Reach Out if Needed:
    • Borrowers who are unsure about their account details or refunds should consult their tax agent or financial advisor.

Why This Change Matters

These changes are a welcome relief for borrowers facing rising loan balances due to indexation. By tying the annual indexation rate to the lower of the CPI or WPI, the government is helping borrowers keep their debt more manageable, providing long-term financial benefits.

At Tax Accounting Adelaide, we’re here to help you navigate these changes. The ATO is asking agents to:

  • Verify and update bank account details for clients.
  • Manage refunds if the agent’s account is the nominated account.

Please note, that the ATO won’t provide a full list of affected clients until all recredits are processed. Let us assist you in keeping your accounts up to date!