Hi Guys
My daughter is starting out on her university education and I have the dilemma of paying for her education fees all or part and allowing her to pay back as and when funds are available.
Or is it better for her to get the Hecs loan and repay this at the earliest opportunity even before it could be deducted from a salary?
I have read that an unpaid Hecs debt is not supposed to affect your credit rating but can a paid Hecs debt improve a Credit Rating?
Thanks for all your views on this.
Better for her if you just pay it all off, HECS debt increases with inflation.
No way. Better for you to invest the money into an ETF and get above inflation returns then give her the money as a house deposit. HECS debt is only indexed to inflation unlike any other loan where the interest rate will be far higher.
Ok I agree with half of what you said, but why specifically a house deposit?
Why not a down payment for a IG / brick n mortar business she wants to start? What about if she wants to travel for a year instead?
Aussies are obsessed about "house = wealth".
Yeah the past 10yrs was good in RE, but talks of recession this year or next, and you want a millennial to be indebted to the eyeballs, with $50k hecs AND a mortgage in a down economy? Why?
Look around, the "Australian dream" is broken.
I'd say build cashflow first, then look at putting some of that stream into a deposit.
Not 0 cashflow, go into 6-/7-figure debt, and then try to workout cash inflow from there.
Good luck getting cashflow in your early career. And good luck being able to get leverage on anything but a house. Even if there’s no capital gains there’s still the saving on rent and improved lifestyle owning gives you over renting
Good luck getting cashflow in your early career.
See how stupid the system (+ general pop mindset) is?
The Banks will accept a 5% for new buyers on a $750k mortgage to a millennial who works at the local cafe. Nice $20/hr cashflow there mate. What happens if shit hits the fan (and it has, the past 2 yrs) and they don't have income? Put everything on CC? Can they ReFi yet? Centrelink can't even pay for weekly rent, let alone weekly mortgage payment. Have you seen stats for 90-day arrears & mortgage stress? Through the roof!
This is how 2008 GFC started - one is only in denial if they can't seem to join the dots.
The answer is to focus on generating income / cash inflow / investing smart / saving hard to maybe 20%, then purchase property when you can actually afford it. Otherwise don't bother with 5% as you'll just want to suicide as years go on. I'm sorry, but simply put, if one doesn't have cashflow to back themselves up + emergency fund, maybe property investing is not for them, right now at this point in time.
saving on rent and improved lifestyle owning gives you over renting
How does this apply if you lost your job?
If you have any debt other than HECS, pay that off first. HECS is the cheapest debt you'll ever get due to it only being indexed to CPI and not charged compound interest.
Whether you have a HECS debt or not doesn't impact your credit score directly.
Any required repayments will be taken into account as part of your general income and expenses figures when they calculate one's ability to pay off the intended loan.
It would be better to use that cash as more deposit and keep the hecs.
I applied for pre-approval recently (hope to buy a home) and the banks/brokers I've talked to have essentially not cared about HECS, they mostly tell me "psshh everyone has HECS, I mean do you have any real debt". So I don't think it makes much of a difference, my HECS is quite big as well but it doesn't seem to be taken into account as a debt as it where its not like they subtracted my savings from my HECS, but I think repayment calculation is based on post HECS removed out if that makes sense.
Or is it better for her to get the Hecs loan and repay this at the earliest opportunity even before it could be deducted from a salary?
My understanding is typically no unless you have the money, and can sometimes be worse. Unless you're in the last year and you can just pay it off, or you just want to remove the debt, then go ahead of course. But I was told you have to pay a fee if you pay it off early (bank fee I think?). I think Tony Abbott changed the rules during his time, where you no longer get a discount for paying it off early, so its typically best to pay it off as slow as possible as its only CPI based and use that extra money for any possible debt or for deposit for home.
Hey dad, it’s me, your kid
Even with interest rates and inflation going up, your HECS debt is still the lowest interest loan you'll ever get, so you should probably pay it off as slowly as possible.
With CPI at 5.2% most people will have a lower interest rate on their home loan than their HECs this year.
I agree with the longer term sentiment but this is going to be a strange little period,.
May be don't pay the student loans?
It's one of the debts that never needs to be paid back.
No way in hell am I paying off my daughter's $150k HECS debt.
Casper
Bringing post and ghost to a whole new level?
Bringing post and ghost
Very good chance.
Member Since
1 hour 48 min ago
No, it's a debt but not "credit".
It cannot improve or impact a credit rating but not having a HECs debt increases your borrowing power. It simply means you take home more money than someone without one. You can then afford more debt.
$80,000 with HECs is take-home is $2,227.07 a fortnight
$80,000 without HECs is take-home is $2,380.92 a fortnight.
It's an extra $153.85 a fortnight t put towards repayments. Nothing to do with the credit score.
Can a Paid Hecs Debt Improve Your Credit Rating
Not sure about credit raiting but you can borrow more.
Not to comment about credit rating, but you will save your daughter ALOT more money in the long term by paying even partial fees.
Or that's how it was when I was going to school…
My rents made the mistake of not paying a little bit of it and now i'm just eating the full thing.
HECs debt severely impacts your maximum borrowing amount. The amount it reduces is non-sensical (like it would drop 100k even if you have something like 10k of hecs debt), so pay it off if you want to borrow more.
$100,000 or $250,000 won't make a difference.
The majority of Zoomers won't be able to afford to buy a house by 2030.
my zoomers already got properties locked in
they save since 15 with casual jobs, I throw in ETFs for them
finished uni, 1st year out uni, on the high paying job, anniversary year, they locked in one property with 20% deposit
another one in a couple years then shares and ETFs
Good for them.
The majority of Zoomers won't afford to buy a house.
@rektrading: most can it a matter of priority and they need concrete plan, less complain more actions
most of my kids friends complain housing is expensive and they resign to the fact they cant afford it
and went on holiday and YOLO and Gadgets which then pushed them even further out.
I told my kids high asset price is outside of their control, no point complaining about it and there is nothing they can do about it, their best court of action is do something that they can control
save, invest, look for higher paying jobs, stay home longer don't move out, do that for 5-10 years anyone can afford a deposit for a house and it all within anyone control
This isn't the USA, HECS isn't counted as real debt but does impact take home pay - which impacts how much you can borrow (the size of the loan you can service). I'd let daughter take loan as I think you'd be better off investing elsewhere.
Thanks, guys for all the comments in only a few hours.
I expect a total Hecs debt to be around the $30k mark over the next two to three years.
At the moment I am heading towards a Bank of Mum and Dad loan that she can pay off mostly during her time at uni as she also has a Job.
They do take HECS into account as part of your repayment calculation
so they deduct certain amount from your salary
best to knocked it off
my kids bought properties with small HECS debt wasn't an issue but if there was ever an issue
I would offer to pay it off for them as part of their education expenses
As far as I’m aware, Australia doesn’t have a universal credit rating like the USA, there are a few different providers that give you a “credit rating”, but if you go for a home loan or anything with a bank, they have their own criteria that trump any supposed “credit rating”.
Better for her if you just pay it all off, HECS debt increases with inflation.