ENDING SOON: 5% Bonus on Voluntary HECS Repayments + Avoid Indexation + Use AmEx?

drillvoice on 16/04/2016 - 18:40

This morning in bed I was seized by a sudden urge to check on my HECS debt.

Suddenly, two things came to my attention:
-Currently there is a 5% bonus on voluntary HECS repayments of over $500. This is only until 31 December 2016. (https://www.ato.gov.au/Individuals/Study-and-training-suppor…)
-HECS is indexed on June 1st. Last time for me this was about 2.5%.

This means that it may be a very good decision for you to make a voluntary repayment on your HECS.

Scenario 1: Your HECS debt is small enough that it will be eliminated in the next year or two.
In this case it's probably a good idea to use the 5% bonus and make a payment before June 1st - this is effectively a guaranteed 7% rate of return.

Scenario 2: Your HECS debt is big enough (or your income small enough) that it won't be eliminated for years.
The economics of this are less clear - arguably the 5% bonus now isn't worth actually having more cash available to you in the future. Given that you'll still be making HECS repayments for years to come, you won't experience any short-term benefits.

Interesting consideration:
It's possible to use AmEx to make a HECS repayment. The fee for this is 1.45%. However, this could be a very straightforward way of meeting a required minimum spend or earning points too.

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Comments

  • holdenmg on 16/04/2016 - 18:51

    Hi,
    Just wondering if you use your Amex to buy/fund a Prepaid EFTPOS card @ Coles (w/Flybuys?) can you avoid the 1.45% Amex fee?

    • rambutann on 16/04/2016 - 19:02
      +1

      You will most likely be charged a cash advance fee if you did this which I believe is 3% or $4 whichever is greater? (I could be wrong…)

  • catbrain on 16/04/2016 - 19:24

    Indexation is based on the annual CPI to March; March 2016 CPI will be released on 27 April.

  • Munificent on 16/04/2016 - 19:40
    +1

    OP, even if you face scenario 2, it may still be worthwhile putting in some voluntary repayment given you get the 5% bonus and avoid the indexation on the portion you voluntarily contributed, making it about 7% return as you mentioned.

    Hard to find a better risk / reward investment at the moment, so this is definitely worth considering.

    Thanks for sharing.

    • drillvoice on 17/04/2016 - 09:17

      I have thought about this. However, I think it isn't anywhere near as compelling because you don't really get your 'principal' back for years and each subsequent year you only save the 2%. Not quite sure though.

  • altomic on 16/04/2016 - 19:44
    +1

    let's pause a moment to acknowledge the pragmatism of Gough Whitlam.

  • captobvious on 16/04/2016 - 20:47
    +4

    I'm going to die and still have a hecs debt.

  • altomic on 17/04/2016 - 01:03

    what ever happened to their 20% Bonus on Voluntary HECS Repayments?

    My HECS debt keeps growing. thank barry that the end is only 6 months away.

  • Flowerbomb on 17/04/2016 - 09:51
    +1

    don't you have to make the payment before end of May to avoid the indexation? Can someone confirm?

    I'm going to bpay it to avoid charges.

    • drillvoice on 17/04/2016 - 18:18
      +1

      That's correct, 1 June is the indexation date.

  • rgr on 17/04/2016 - 10:10

    I still have around $13,000 HECS which I can easily pay off from savings but I'm still not sure about it. It's a disgrace how it's become 5% discount…I remember at one point it was like 15% around 2010 or so

  • apony on 22/10/2016 - 11:33

    I'm contemplating similar scenarios, with the 5% bonus ending very soon.

    I have $16k HECS debt which will be compulsorily paid by 2016-17 if I do nothing (half in this year's tax return which I'm about to lodge, and half next year).

    Scenario A: Voluntarily pay HECS in full with 5% bonus, and avoid indexation next year.
    For me, this will effectively mean outlaying $8k now, as after paying the $16k I'll get tax refund of $8k for 2015-16 (only if I lodge my tax return with nil HECS debt).

    Scenario B: Do nothing and leave my money in my homeloan.

    I think I'll come out slightly in front under Scenario A.

    Does this make sense and am I missing something??

    • drillvoice on 23/10/2016 - 17:47

      I think the only thing to consider - and what I find confusing - is that the 'bonus' in scenario A is for one year only whereas the 'bonus' in scenario B you keep getting year on year. But I don't fully grasp it anyway :/

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