Should I pay off my HECS Debt?

I have ~25k in HECS debt. wondering if I should pay it off. I was keeping it previously as bank interest rates were above inflation. But now that inflation is higher than bank interest, is it better to pay HECS debt off?

income is ~80k/yr before tax.

Have very low-risk tolerance hence have not invested in share market.

Comments

  • +1

    I put my earlier HECS (2016-2019) debt payments into Bitcoin, and still have it that way :) cop that you Govt bureaucrats :)

  • +1

    HECS is probably the cheapest loan you will ever get in your life. Rises with inflation, why would you even want to pay it off sooner than you are obliged to. The government mandatory payment rate is probably worked out in a way that's fair to the country anyway.

    • +1

      Should be the last debt you ever pay off. Only pay what is needed, if any. Residual,is wiped when you die.

    • -1

      Not sure why you were negged so gave you a +

      • +2

        Lol the neg voter came back to exact vengeance

  • -2

    Never pay off your HECS.

    Just get an investment property and makes losses, so you'll never get past those thresholds.

  • HECS is free money. So no.

  • -3

    Don’t never not pay off your HECS debt unless:
    1. You’re going to buy a property and your HECS debt is negatively impacting your borrowing capacity and also your total buying capacity. In this case you’d then have to consider whether using money to pay off your HECS would increase your LVR to a point above 80%. If it did I would advise against it cause then you’d pay LMI which IMO is dead money.
    2. You have more than enough cash saved up to buy a house and literally have 0 need in the foreseeable future for that excess money you’re gonna use to pay off your HECS. Although in this case if you were to buy a property soon that money would do you better in an offset account than paying off your HECS.

    Basically, if you plan on buying a property now or anytime in the foreseeable future don’t pay it off unless you need to for borrowing capacity. Also, if you already own a property don’t pay it off.

    • +7

      I know I'm not wise when I got lost at "Don't never not"

      • The "don't" and "not" cancels each other out so the sentence really starts with "Never …"

      • +1

        "Don't do what Donny Don't does."

        They could've made this clearer.

    • Oo, triple negative. Those are rare.

  • +3

    On top of this:

    Never declare that you have a HECS debt when filling out a TFN declaration form!

    This isn't a legal requirement for you to do this. It simply means that your employer will withhold (and send to the ATO) additional tax to cover the HECS debt. It is not credited to your HECS debt until you lodge your tax return. You are not saving on interest. It simply means that you are less likely to end up with a tax bill.

    Keep that money in an interest-bearing (lol) account. Keep it under your mattress. Keep it anywhere other than in the ATOs hands! Do your tax return and THEN give the ATO their money.

    • Is this true? I would be very interested in doing exactly this, but I can't find any ATO information that confirms it.

      • +5

        You are not legally obliged to have additional money withheld to cover your HECS debt. It's simply a "courtesy" that the ATO offers. You are only legally obliged to pay it with your tax return. If you don't do your tax return yearly, there may be further implications; stay on top of your tax.

        As I said, that additional money that is withheld is not credited to your HECS debt until after you do your tax return and there is zero benefit to you other than less "bill shock" when your tax return is completed. Even ruder, HECS debts are indexed on 1st June, where as EOFY is 30 June, meaning even if you did your tax return on 1st July, you're still a month too late to beat the indexing.

        but I can't find any ATO information that confirms it

        I hate to sound all tinfoil hat, but that's because they don't want you to know. I actually called the ATO and asked them when I discovered the loophole, they assured me it was fine (but discouraged). I did it for several years when I was making 3-4% on that money.

        • Thankyou!

      • +1

        Just another consideration for you - banks will look at your HELP debt and monthly repayments when applying for a home loan. If this is something on the cards for you in the near future I'd think twice about changing your employer withholdings. My payslips don't specifically call out my HELP repayments so my broker and bank ran the numbers to check that it was being taken out. It will certainly raise questions with the bank if you don't withhold and it won't look good to them that you're receiving a tax debt each year. It doesn't really matter how financially savvy you are the bank will assume the worst of everyone.

        • I don't think banks scrutinise quite as hard as you might think… in any case the bank gave me 800k with this system in place.

          • @picklewizard: I've just gone through the approval process and received approval last week. I've spent the past few weeks of my life chasing us everything under the sun. They are ruthless at the moment and even our broker said he's never seen it so bad.

    • While you're at it also declare your income is $0 and therefore no HELP debt to pay. You sign a form saying the information you have given is true and correct. It is not a courtesy - it is a declaration. It is true that HECS debts are indexed on 1st June and EOFY is 30th June - if you want to beat indexing and use the money for investments as well just simply make a voluntary payment before the 1st June after using the capital. See my last post for an example.

      • The catch with the "make a payment before 1st June" is that you still have to make the compulsory payment after that date too.

        You sign a form saying the information you have given is true and correct. It is not a courtesy - it is a declaration.

        IANAL.

    • +3

      This is an excellent tip. I used similar thinking back in the day when I was working 2 jobs. I claimed the tax free threshold for both jobs so they wouldn’t tax me 45% on my second job (also not a legal requirement to declare additional jobs as a second job).

      I got to keep the extra money and get returns on it and just got a tax bill instead. The ATO discourage it only because they believe the majority of Australians aren’t financially prudent to cover their tax debt.

      • -1

        And the fact that if you fail to pay the tax debt and have wrongly declared these things the ATO is not exactly going to be lenient.

        This tactic while may work is terrible general advice.

        • It’s only terrible advice if you aren’t financially prudent. The financial prudent are the ones that look for these loopholes to maximise their returns.

          If you’re so worried about a subsequent tax debt, and the ATO calling you, then you’re bad with money and probably wouldn’t even be aware of these tactics.

          Why let the ATO hold onto money you could be using to better your own position?

          • @jenkemjunkie: Again general advice should fit most people, most people are bad with money and thus , bad general advice.

            I'm not worried about myself , I have no issue managing my money.

            I found this interesting and may use this strategy myself.

            And to answer your question , bill shock , fines , interest on amount owed.

            Again I say this is bad general advice and should only be followed by someone who is in control of their finances and understands the ato will probably rip you a new one if for whatever reason you are unable to pay it on time and have intentionally lied on your declaration with your employer.

  • +1

    If you are in a position to pay off something towards it - make a payment before July and it will reduce how much gets indexed in the next financial year (inflation)

    A lot of people say not to pay it off. Really depends what else you have like other debts and goals. If you have debts with much higher interest rates it would make more sense to smash them out.

    My scenario - my $12k HECs debt turned into over $20k in the span of about 5 years. I paid it off in full when there were incentives to do so (they no longer offer a discount for voluntary payments) so I disagree with those who say it's a 'cheap' debt. The whole amount is indexed each year with the CPI rate (generally under 5% each year but keep in mind it is indexed every year that you have the debt!)

    • For the OP, please read through the official info here, it might help you to decide. I can't edit my earlier comment - I meant make an extra payment before June 1st which is the cut off before indexation is applied.

      https://www.ato.gov.au/individuals/study-and-training-suppor...

    • +2

      My scenario - my $12k HECs debt turned into over $20k in the span of about 5 years.

      That doesn't add up. To get from $12k to over $20k in five years would require an average annual indexation rate of greater than 10% and we haven't had CPI figures that high since HECS was introduced in 1989.

      Indexation is based on the 12 month CPI as measured in the March quarter. Looking at the historical figures the very first indexation in 1990 would have been 8.7% and in 2001 it would have been 6.0%. Every other year has been less than 5%.

      • Unfortunately I don't know where my summary is as I paid it off over a decade ago, but I assure you the debt was significantly higher.

    • my pay goes up 2.5% each year even if i dont progress to the next pay point (well, it was meant to -_-) and my hecs debt raises by 1% each year. If i hold out long enough I;ll be paying a much lower percentage of my income to HECS, not because of any performance pay rise, just because of my yearly inflation pay rise.

  • -1

    What about looking at it from a moral point…?
    You borrowed something to get something…

    • +1

      The government offers hecs loans because it benefits the country - more people educated, less people in poverty, more brainpower to push us into the future. They don't offer it out of the goodness of their own hearts. You're entitled to treat it the way that helps you the most.

      • +1

        I agree with the first part of the statement. But to say you're entitled to treat it the way it helps you most is… well, kinda entitled.

  • -1

    Scomo needs it. He’s saving people every day from all sorts of disasters and taking holidays is very expensive when this happens.

  • +1

    Wow no more discounts now.

    I recall it was in the order of a ~15% discount if you pay it off early as a lump sum. I thought to myself, I need to pay this off in 1 shot.

    • +1

      Used to be 10% then dropped to 5% then disappeared.

      Annoyed as I had started paying mine off with the 10% bonus then chose to wait and lost money paying it back with 5% as I didn't pay it off all in one go but could have at the time.

      • -3

        The voluntary contribution discount is still there for current uni students.

        • +3

          It was removed in 2017… They used to offer a 'bonus' for making a voluntary payment after incurring the loan. Perhaps you are confusing it with the option to just pay the fees up front instead of incurring the debt itself?

          For the OP, please read through the official info here, it might help you to decide. I can't edit my earlier comment - I meant make an extra payment before June 1st which is the cut off before indexation is applied.

          https://www.ato.gov.au/individuals/study-and-training-suppor...

            • +1

              @Orico: That's up-front - before you incur the debt. OP has a debt already so I don't see how that is an option unless they are still studying.

  • -3

    lol @ people here stating not to pay off debt. These are the same people with large loans.

    Pay the debt off and live your life worry free

    source: no debts

    • +1

      Not necessarily. They may be people who make intelligent decisions about the order in which to repay debt. For many (most) people HECS is the last debt in the list to be paid given it is so cheap relative to other forms of debt.

  • No. Absolutely not. HECS/HELP debt is the cheapest form of debt you can have.

    The Government already changed the rules retrospectively, by dropping the repayment threshold to a measily $46,000

    The Government/Uni's did this after assuring influencable young people "you will only have to pay it back when you are earning a decent income". Well wasn't that was complete BS?!

    Why would you give those two-faced liars a single dollar voluntarily?

    • Why would you give those two-faced liars a single dollar voluntarily?

      Because you borrowed it?

      • +2

        It was borrowed it under a set of rules. They retrospectively changed the rules.

        I'm more then happy to pay it back under the original conditions of the loan. But NEVER voluntarily.

  • no - HEC debt is the safest debt you'll ever have.

  • +2

    Its pretty disturbing how a lot of people are looking at HECS as free money , money they deserve. It is a tax payer funded loan to help people get a education with the idea that once they have gotten a education and are making money that they will make an effort to pay it back. If everyone starts thinking of it as free money at some point it will no longer be available. Which would be a real shame especially for people who cant afford a education without it.

    • +2

      I can't agree enough.

    • +2

      Its pretty disturbing how a lot of people think students should pay to get an eduction. We can easily afford education for everyone without it… Germany, Norway, Finland, etc, etc fund all tertiary study through government expenditure because they know the government will far benefit more from a lifetime of increased taxes on their increased incomes.

      • -1

        Well that depends if the students stay in the country and work there, it doesnt work if the students come for the "free" (Its not free as its still paid by tax payers) education and then leave the country and work elsewhere. And its not a right, its a privilege to have this. There are many more countries where tertiary education is not free at all. You have to pay to go and hence only the wealthy can afford it.

        Besides which anyone who is on HECS agreed to the contract of HECS and acknowledges it is a loan, hence they shouldnt then think of it as free money. They knew exactly what it was and they agreed to it, if they are so against it, then why take it up as a option. Because its still better than the alternative.

        I agree ideally education is free but Tertiary education is always a tricky area especially with the liberal government, they want all universities to be privatised and run as a private corporation. If we are not careful, we will lose HECS altogether, then what do we have. Exorbitant fees to attend university every year, only the upper class going to Tertiary education. Even the TAFEs have been attacked by the government but at the moment its still tertiary education that is pretty much free to everyone.

      • +2

        I like the HECS system. The government pays for a significant portion of your education if you get a commonwealth supported place and then the rest you don't have to pay until you have a job that earns you a reasonable salary, plus the loan is very cheap.

        I think it strikes a good balance between encouraging higher education and not burdening people who choose not to pursue it with the cost and it clearly doesn't discourage people from studying, tertiary enrolment rates have never been higher.

    • +3

      The issue with HECS is that a lot of courses that you can take out a HECS debt for are unlikely to lead to a job that pays it off in a reasonable timeframe, if at all.

      • The sad part i guess is if Australian governments really looked after our natural resources and made money from it to its true value rather than corruption and selling out to these multinational corps, we actually would be able to afford free education as well as pretty much remove all tax including income tax. The amount of natural resources we have as a country is absolutely astounding compared to the population we have. But sadly so many corrupt politicians means lobbying groups get what they want and so do these corporations so instead we just make pittance on what we could have made.

  • +1

    It is a lucky country with such taxpayer funded schemes.
    Years back 1000s misused the system by leaving the country after using HECS as Permanent Residents.
    I believe Commonwealth closed this loop hole.
    This should not be considered as normal debt as there is moral obligation as well.

  • +2

    The answer is actually dependent on OP's income. Hypothetically, if OP makes $250K/yr the answer is yes he should pay it off just before the 1st June.

    Taxable Income: $250K
    Repayment Rate at that income: 10%
    HECS Repayment: $25K
    Indexation is applied at 1.8% p.a. on the 1st June = $450

    If OP pays the full amount just before the 1st of June, then he will save $450. By doing this, he can also let the $25K accrue the interest in his high interest savings account while also saving a further 1.8% p.a. on his $25K.

    The same concept also applies for lower incomes - do the math and work it out.

    Also the post advising to declare HECS debt on your TFN form - that is fraud. You are declaring the info you give is true and correct on the form.

    • This is so wrong. The opportunity cost of that $25k being invested in an ETF will far out perform saving $450 + 1.8% HISA (which you need to pay tax on) for one year.

      • +3

        I agree with you that $25K will likely be better off on average in comparison to HECS however in the scenario I described the issue at debate here is that the $25K is a mandatory deduction that will be incurred anyway. And as it is mandatory, it is better to incur this before the 1st of June compared to after due to indexation. OP will make a guaranteed return of roughly 3.15%.

        My point is depending on the OP's income, remaining HECS debt, and financial situation there are circumstances where the answer to his question is a Yes. It is not about debating which investment is the most profitable for $25K. ETFs are also long term investments and we don't know OP's financial situation nor do we know if he will need money in the short term. If this was January 2008, OP would be better off executing the above strategy compared to losing ~35% of his $25K in 12 months. If OP is seeking to buy a $25K car in 6-12 months time, the above strategy is also optimal.

        • Sorry, you're correct. Completely missed your first sentence about it being dependant on OPs income.

  • +1

    Education should be free. HECS is a perverse system that will collapse once the boomers die off and the majority of voters have HECS debts. No one is going to vote against a party the promises to cancel their debt. Then these goody twoshoes who think it's the right thing to do (when it is very, very wrong) and pay off their debt wont be getting a refund.

    • No one is going to vote against a party the promises to cancel their debt.

      Wouldn't that be the goody twoshoes?

    • +2

      By the time all the boomers die off, a whole bunch of people who have paid for their HECS already will replace them. Do you think these people who paid for their HECS are going to vote to cancel debts? Nope. If anything, it will just piss them off.

    • +1

      Basic education should be free. Choosing to be a professional student into your thirties should not be. There is a spectrum…

      • +1

        "Choosing to be a professional student into your thirties should not be. There is a spectrum…"

        There is a spectrum. What about people in their 30's who grew up in poverty/rural area's and only have the opportunity to advance their career now? Why should they be further penalised for getting a rough start in life? Education should be free, no matter the age. I'm not against putting a limit on the amount of time spent studying (which already happens - Allowable Time)

        • I said into their thirties, not in their thirties. Ie. People who have been professional students for 10+ years after school without transitioning to work. I agree if someone didn't go to uni straight out of school they should have the same opportunity in their 30s and 40s.

        • Education should be free

          basic education, like the k-12 one, is free, and should be free. But tertiary education, which is related to how you might get a job, ought to be paid for by the recipient of the benefit of this education.

          A loan is a great way to pay for this, as the recipient has to choose an education which could pay for the loan, and therefore, this self-selects for demand in society. It prevents tax-payer from shouldering the cost of education for people who do it purely out of interest and have no intention of monetizing their degree.

  • +1

    Without any context it’s impossible to give you a considered answer.

    As other posters have noted, you have made no mention of your current income levels, whether you’re looking to purchase property/get a loan, etc.

    In most cases though, no I wouldn’t bother paying it off. Let the system do it for you automatically as required.

  • Choose wisely:
    6% interest gained on stocks
    1.8% interest lost on HECS

  • If you can, pretend you don't have a HECS debt. Your life will be much better AND you have the money to invest somewhere else.

    Only pay it off if the ATO gives you monetary incentive to pay off early.

  • Graduated in 2004 after 4 years, total HECs debt circa 15k, paid it off once working in 2 and a bit years… God help those students racking up HECs these days, last time I heard arts degree subjects were 3 to 4 grand a subject, times 24 subjects…

  • Pay it off it is one less thing to worry about.

    • +1

      Or don't pay it off any sooner than required, and don't worry about it either - it simply comes out of your pay before it even hits your bank account (assuming you've told your employer you have a HECS/HELP debt).

  • Great discussion.topic. thank you.

    So hecs debt interest rate is whatever the cpi % is?

    Have $20k at hand. Was going to put it towards uni fees to help the kid but now it is going into Tesla shares instead.

    • The HECS indexation rate last year was 1.8%. Not far off home loan interest rates really.

      Those who would rather invest need to make around 2.6% in profit before tax to be better off.

      • +1

        A 2.6% return is a piece of 🎂 for savvy investors.

    • 10% discount if paying uni fees upfront was introduced again this year I believe.

      • Where? I can't find it on the government website

        • I will clarify that this looks to only be for gov supported placements that would normally be eligible for HECS , payments over 500.

          https://www.google.com/url?sa=t&source=web&rct=j&url=https:/...

          • @Settero: The government website explanation looks convoluted but would be good understand.

            • @mrbillions: Students eligible for HECS‑HELP assistance will receive a 10 per cent discount if they make up-front payments of $500 or more towards their student contribution.

              The discount means students will pay less for their studies if they make an up-front payment and gives students more options to pay their contributions. The discount provides an incentive for students to pay up-front, either fully or partially, which will decrease their student debt.

              The HECS‑HELP up-front payment discount will apply for up-front payments of $500 or more for units of study with a census date on or after 1 January 2021

  • -1

    Buy Bitcoin.

  • +1

    Done the numbers and you are better off not voluntary paying your hecs. The $ getting taken out on your payg to pay hecs is good enough.

    Once upon a time 200X when your voluntary paid your hecs in a lump sum you get a 20% off those days are long gone

    I heard uni used to be free too