Hey all,
With the index moving up to 3.9% should I pay my HECS debt off and be done with it.
I have the required cash sitting in a savings account and that won't need to be touched for 10years+
On the other hand I'm a stay at home dad and its going to be a very long time until I earn over $46k and potentially may never again. So maybe I just take the debt to the grave??
Thanks
That's what I'm thinking but, I'm not convinced the government won't take it from your estate or super when you die in say another 50-60 years
Who cares, you'll be dead…
no Way bank interest pays more
@28kb: Ah, all you young people too young to remember what happens next. Give it a little time to adjust - this is a long-term decision.
We are in a transition right now because government / RBA broke the system, it's a short term anomaly.
Traditionally, back when the financial system was normal, high interest savings and term deposits pay just a little more than official inflation rate, not to mention quite safe managed fund investments etc.
Now the RBA have been late in putting up rates because of political influence and they pegged it so wrong and needed to save face, they haven't caught up yet, but give it a year or so.
What will happen now is RBA finally admits they were wrong and puts up its rates, banks put up home loan rates, and savings rates too - i.e. we go back to how things were pre-2008 when banks were paying 5-6% on high interest savings accounts and term deposits.
I know, a little thing called experience - I used to earn that and was comfortable back then my money was outpacing inflation. That's when I had a HECS debt and it made no sense to pay it out as I got more from the $s very safely.
Regardless, I'd advocate for any investment decision that outpaces inflation as a better option than paying HECS debts which effectively are just neutral with it. If you can't get that from your bank just yet - plenty of other managed fund options.
@MrFrugalSpend: Ahahah, are you also suggesting that house price will go back to the affordability levels pre 2010 or even 2000? System is broken, and there is no way to fix it, money printers will continue to go brrr… with various excuses, warmongering being one of them.
no understanding of advanced economics
.
ye brus THE ECONOMY IS BROKEN, i dont understand what im talking about and that is direct indicator that noone else does either
Note that in 50-60 years $12k will likely be 1 days wages.
All thanks to gov obsession with currency debasement.
"Work more, make less". Will be the motto in 2030.
The problem is the OP's debt won't be $12k if they live to see 50-60 years down the track. Indexing will make sure the debt would be or similar value (in purchasing power / value) in the future, hence last year's indexing was 0.6% and this year's 3.9% due to the current situations (mainly government and economy situation). This indexing is calculated by the consumer price index (CPI), so the debt grows in line with national economic growth / loss.
Example 1: If a student had a HECS debt accumulated 2020 of $10,000 (let's say this is from Session 1 in Feb) and that is the only amount they have currently accumulated (let's call them a 1st sesh dropout), then there is no indexing on that amount for the first 11 months. This means Indexing will start Jan 2021 (being charge 1st June each year). For our example, the person would have been charge 0.6% (~$60) for 2021 (bring the debt to $10,060) & 3.9% in 2022 (~$392 taking the debt to ~$10,452). We can then calculate the rate by averaging our known rates for 2021 + 2022 = ~2.25%.
Therefore, from our example this student would have borrowed $10k, but will be required to payback an extra ~$452 (~$10,452) for failing to repay the amount before indexing kicks in.
It's important to note that the rate in 2021 was extremely low and 2022 is extremely high, but they balance each other out to be around the standard rate for the last 5 years (see below) give or take. Also, most students' debts are MUCH larger and have many years indexing (we only started this in 2013) and therefore their debt is much larger. I have done an example below to show you what this would look like.
Example 2: If we consider the average full-time student today doing a band 3 degree, they will accumulate $9800/year debt and studies for 4-years without a break or any failure, then they will own ~$40,400 at the end of the degree with indexing at ~2% (factored in for 11 months of index free debt at the time of start the subjects, so twice a year for 4 years). To leave it for 50 years without repayments (too hard to calculate as people pay back at many rates) would come to ($40400 debt + Indexing charges $68,340) $108,710 (+/-$500) which will be required to be repaid, which should buy you around the same number of goods / services as it costs at present (2020 car = $40k, 2070 car = $108k).
Other things to consider is indexing changes per year (in line with CPI) and therefore the rate will go up and down depending on the year and also the government may choose to start charging interest over indexing (I see this as the next move as HECS is increasing by $12million/day and that's a lot of cash for the government to charge interest). The other worry is the introduction of another profitable want for the government (mainly labor on this one) is death tax, which it's highly likely HECs would be added to this, and this may force your benefactors to sell the family home etc, to repay these debts with interest. It's fine to say that your benefactor can be happy with nothing, but with 1/4 of the population having some form of disability, it could end up where you have to house/care for a disabled child, and they would almost certainly be unable to pay taxes and most likely would be forced to sell and fend for themselves.
I hope this covers where the concern is about why the OP (and many students) would even want to pay their HECS back.
Historical Rates
2018 1.9%
2019 1.8%
2020 1.8%
2021 0.6%
2022 3.9%
@Froot Loops: It's to my understanding that in Australia there are no taxes on inheritances or deceased estates.
Sounds like Gravy to me
Lol classic. Gets the taxpayer to fund their education and then never pays it back. No wonder these schemes cost the govt a fortune when people like this take advantage of it.
Whats ozbargain got to do with leeching off the taxpayer?
@Piranha2004: Once I get a payout for Daniel Andrews's lockdowns, I'll agree with you. But we're living in a world where random digits (crypto) and URLs to images (NFTs) are highly valuable assets. Surely it's time to divorce ourselves from the notion that money is intrinsically valuable and finite and accept that it is something humans assign value to meet an end and incentivise certain behaviours?
@Piranha2004: It's strange because I'm also not a fan of those "How do I minimise my tax? [by buying several houses]" posts. But I guess I feel with HECS debt this was the scheme's intention: pay it back if you get value from it. I guess you could also argue negative gearing also had a very deliberate intention - and I just don't like that one.
With the marginal tax rate I was copping pretty sure I've already funded my own education for a degree that I've never used.
The fact that you haven't paid off your HECS means that, by definition, you have not completely funded your own education.
@p1 ama: HECS covers only part the cost of higher education - the taxpayer heavily subsidises the rest (the only exception is for 'full fee places which are mostly taken up by overseas students). So even when you pay pack all your HECS you have not "fully funded your own education". And that's before considering any Austudy/Youth Allowance your received while studying.
How about the health services, infrastructure, public schooling and other government services you consume, did you fund all those already to?
I thought the point getting a tertiary qualification was so you could then get a job on the big money and paying back the debt (which only came into existence in the 80's) wouldn't be a problem cos you'd be on the big bux? Were we scammed yet again?
Just pay the c**** off and be free of them.
Student loan debts are one of the worst policies they ever came up with, many degrees just got doubled in fees due to ideological nonsense and the gov are so shortsighted, many will be paying them back for the rest of their lives at this rate. The indexation seems like a nice little earner though for them…first degree at least should be fee free dependant on grades or something surely above a pass average
@DemocracyManifest: The worst part about it IMO Is universities upping the intake for certain professions that only have a limited number of jobs. They are well aware most students won't get a job and the degree is practically useless. Most engineering degrees have compulsory work experience/placement so atleast you get a taste of what you're getting into before it's to late
The worst part about it IMO Is universities upping the intake for certain professions that only have a limited number of jobs
Luckily people can decide whether or not to take up degrees like this for themselves. It's their choice to take on the degree and the debt. No one is forcing them to do it
Student loan debts are one of the worst policies they ever came up with, many degrees just got doubled in fees due to ideological nonsense
You got this part right… but then you said this:
first degree at least should be fee free
Both are equally stupid ideas since the end result is the taxpayer funding private enterprise.
private enterprise
Are you referring to academia as 'private enterprise'? Because if so, I understand your point but strongly believe that universities should not be considered businesses. They're for educating the populace, and it's better to live in a place where people are educated.
If you're referring to real businesses requiring increasing levels of education and (typically lower-tier) universities being degree mills that businesses increasingly require for jobs that shouldn't need university-level education, then I understand why you're referring to it as private enterprise. But even so, more learning is taking place at a university than at a job site.
They're for educating the populace, and it's better to live in a place where people are educated.
No, that is what K-12 is for. We have millions of Arts grads that easily disprove that most Uni degrees are not worth the cost.
If you're referring to real businesses requiring increasing levels of education and (typically lower-tier) universities being degree mills that businesses increasingly require for jobs that shouldn't need university-level education, then I understand why you're referring to it as private enterprise.
Exactly that.
The whole industry is a racket because most degrees are useless, and the requirement by other business to have a useless piece of paper only feeds into the scam.
The indexation seems like a nice little earner though for them
This is really not how indexation works…
@DemocracyManifest: HECS/HELP is pretty great, without it most people would never be able to afford to go to university and get a degree.
@DemocracyManifest: If first degree is to be free, it would make sense to offer the degree value in tax credits for taxes above a threshold
Those who never use their degree to maximise their earning potential would also miss out on the benefit.
There needs to be some mechanism to stop taxpayers from funding "hobby students".
@DemocracyManifest: There are certain industries where, without a significant supply of tertiary educated people, won't exist in this country. (US can't get out of chip-shortage by throwing money at the problem cos they lack all the fabrication process engineers/scientists)
Yeah - a percentage of people who do uni degrees may not get value of them (can't exactly find an objective stat for it). But I'm one of the success stories of the policy. I definitely wouldn't have gone to uni if I knew I had to pay the $100K or $200K for a degree instead of the subsidised $25-30K we get now.
The problem is more the 'perception' that you HAVE to go to uni to have a decent life. So many students in my course should've left in year 10 to do an apprenticeship in an area they had passion in - not just follow the flock.
We NEED better mentorship programs in high school to make kids think about this earlier.
American TV shows were all we had in my time and this caused an oversupply in forensic scientists (CSI), & usual stereotypes lawyers/doctors/dentists (dramas). There's also this weird negative connotation associated with going to TAFE (hell TAFE sounded awesome in the 1960s & 70s based on what my lecturers told me).
I've only ever worked in Australian Companies that export services & products out of Australia.
So I'm exactly what the government wanted to produce with this program, and I know of many more people in the same place as me.
It's unfortunate if anyone is in the spot where they didn't get value out of their degree, but I still am happy to pay shitloads of tax to support it if I can help other young people get a degree in a profession they care about.
@wimphrel: irony is now with the high requirements there are growing shortages for doctors and dentists outside of cities since migration was halted
@DemocracyManifest: Yeah that's a much harder problem to solve. Unfortunately you can't make all areas 'equivalently nice to live in' to spread all the expertise out evenly.
which only came into existence in the 80's
90's*
90 was free. 91 was half what it is now. 96 it had risen to about what it is now.
HECS isn't taxpayer funded. It's a loan that's paid back after tax. So say if you're a doctor with a $100k Hecs debt in the top income bracket, the actual repayments will total $189k including taxes, before any indexing or CPI inflation is taken into account.
I can agree with not having free tertiary education, but paying back HECS after-tax is such a rip-off, especially given the university fee increases due to having loans available.
HECS isn't taxpayer funded. It's a loan that's paid back after tax.
Where does the 💵 to pay for loans come from if not from taxpayers?
@rektrading: Well firstly, taxpayers aren't the only source of government funding. There is borrowings, royalties, investments, etc…
Secondly, HECS is a revenue-generating asset for the government as HECS is paid back with taxes. Unlike most other forms of debt repayments, HECS is not tax deductible and the government pockets the extra revenue.
So the government is making money, but taxpayers are paying for the government to make money? Your argument doesn't make sense.
@rektrading: Why are you only concerned with the year 0 cash flow?
Your argument is the same as: Who pays for a mortgage when a lender applies to borrow - the customer or the bank? The bank gives the lender money so clearly banks must lose money on mortgages. But mortgages represent a profit-generating asset on a bank's balance sheet, as does HECS debt to the government.
If HECS was tax deductible, you could argue that they're losing money due to the ~20% portion of HECS that won't be repaid, but that's not the current situation.
@iseeyou1312: Student loans and mortgages are not the same.
The banks can sell the asset when the borrowers default.
The gov can't do anything if the borrowers keep their taxable income below the threshold.
HECS
isn'tis taxpayer funded.
The taxpayers pay the upfront bill for student loans.
@rektrading: I used mortgages just as an example most people can understand, unsecured loans would've been a better comparison.
In a diversified portfolio a single default doesn't matter, the average default rate is. And then the cost of the average default rate compared to the profit margin. The fact that you have to pay taxes to the government and then pay back HECS means the government is operating with a significantly higher margin than what banks are used to with mortgages or unsecured loans, even with the higher default rate on HECS debt (technically you can never default on HECS without dying).
On that note, the government likely cost themselves millions by harassing young students into killing themselves over illegitimate Robodebts, due to the amnesty of HECS repayments given to deceased estates.
Of course it is. HECS is only available to citizens and for Commonwealth supported places at universities.
https://www.studyassist.gov.au/help-loans/commonwealth-suppo…
The Commonwealth literally pays the fee for you.
The "extra revenue" you speak of is basically the cost of inflation changes from when the original "loan" was granted. You cant expect a $ to be worth the same in a few years time.
The "extra revenue" you speak of is basically the cost of inflation changes from when the original "loan" was granted. You cant expect a $ to be worth the same in a few years time.
Yeah, I realised a few comments ago you had no idea what I was saying. The government doesn't just take the HECS repayment from you, it takes your taxes first and then takes the HECS repayment. So, depending on your tax bracket, you are repaying the government up to ~89% more than the value of the original loan, before any CPI indexing takes place.
So no, the HECS system is massively profitable for the government. It isn't being "paid for" by other revenue generation methods.
@iseeyou1312: Well that's referred to as return on the investment. Getting a better education should theoretically open up higher paying jobs thus paying more tax. Its no different to any govt project where the govt provides the funds and then that investment is returned with a net positive to the economy
@Piranha2004: Yes, I agree with you. The +100 comment I was replying to had instead stated that the HECS system was a large financial burden to the government.
No wonder these schemes cost the govt a fortune when people like this take advantage of it.
To be fair, things that operate in the interest of the common good like healthcare, education, public transport (not Japan though), etc… are seen as something that should be subsidised by the government, whereas HECS has a positive ROI even before considering increased revenues from higher wage potential.
@iseeyou1312: Just curious, don't you still have to pay the same amount of tax (based on your income) if you don't have a HECS debt?
@bugsucher: Yep, that's how after-tax repayments work. The government bases your HECS repayment on your pre-tax income, takes out taxes, and then collects the repayment.
@iseeyou1312: You have a very odd way of viewing HECS debt, students you opt to pay for their HECS upfront pay with post tax dollars so are they also paying above? HECS is an interest free loan, indexation is added each year. Paying back you HECS pre tax would mean that the ordinary tax payer is subsidising your HECS.
@tomfool: Paying it back pre-tax would mean the government recuperates the loan, with indexing, to the value that was loaned out (the indexing is also not tax deductible, unlike interest payments). Paying it back after-tax means the government gives itself a healthy profit margin factored into the repayments.
Paying back you HECS pre tax would mean that the ordinary tax payer is subsidising your HECS.
The $0 paid for K-12 education is a subsidy, so is the government planning to pay for ~90% of childcare. See the difference?
@iseeyou1312: Paying it after-tax just assumes you don't get a tax deduction for your study expenses and that "opportunity saving" via deduction is only applicable if your self-education was directly related to your area of current work not if you were studying to start a new career. HECS is generally used for a degree for freshies straight out of high school, therefore inherently you wouldn't be able to tax deduct it anyway even if you weren't using the HECS system. Your point of it being paid after-tax giving a profit margin in the payment is therefore incorrect.
oh no… he owes 10k while he is a stay at home dad, which is a much harder job at 0 pay…
I could care less he owes me a fraction of a cent while riasing the next generation and his partner is paying tax anyway. Get off your high horse, put that energy into billionaires paying 0 tax
People are jelly someone got a good inheritance and others didnt
@Piranha2004
Ehhh what is this 'education' you refer to?
these schemes
costmake the govt a fortune
Yes, I agree, student debt is a scheme. A rort in fact.
Designed to lure every Tom, Dick and Harry, to be enslaved to the system.
To buy into The broken Australian Dream of more CC debt, HL debt, car finance debt, personal loan debt, BNPL debt. All the while, wages have been stagnant for decades, and inflation burns our buying power YoY. Ooooh a $4k flat screen!
Oh don't forget Corporate Debt and Gov't ("kick the can down the road") Debt.
Tick fkn tock everyone. Just waiting for this country to pop 🎈📌
out of curiosity for this topic, why wouldnt you just get an offset account and put in there.
It's all in a redraw account with 0 fees. Pretty much exactly the same as an offset account but I don't have a card and don't have to pay yearly fees to keep the offset account
completely different, you cant take this money out and use to offset another property and get tax relief on the first now if u change ppor
oh well maybe not a factor
@Donaldhump: Not sure I follow you. The money in the redraw is all cash. I could transfer it all out today into my bank account if I wanted to. If I had more if a risk appetite I'd invest the cash in something that earns more than 3%
@Zawoooo: The bank at any time can choose to take that redraw amount and lower your loan amount that's owing. You don't have as much control over your redraw as you think. It is definitely different to an offset.
@Zawoooo: I used to think a bit this way, but decided that offset was better for a few factors. Not likely to happen, but the bank may decide the funds in the redraw belong to them, ME Bank tried to pull this a couple years ago. More importantly though, if you convert PPOR to IP your interest deductions will be impossible to determine due to the loan being mixed. Also look into debt recycling if you want to invest.
@cookie2: what part of my post do you mean sorry? banks and brokers should be able to explain everything.
It's not an investment property so no point, no tax deductible interest either way.
No Shit that’s not in dispute, but it limits your options should you move.
Redraw accounts are pointless
@Donaldhump: You said exactly that in another comment -"you cant take this money out and use to offset another property and get tax relief on the first now"
@trapper: and you cant
"completely different, you cant take this money out and use to offset another property and get tax relief on the first now if u change ppor
oh well maybe not a factor"
where do i say that he currently uses this property as an investment?
what dont you understand that you can not use redrawn money to then offset another place """""and""""" get tax relief on the original place on the interest paid.
you have propertu A (current PPOR) 800k loan @ 5%
a.) 800k in redraw (no interest paid)
b.) 800k in offset (no interest paid)
you then buy property B for 800k and rent A out for 600/wk @ 5%
a.) you take money from redraw and put in property B redraw, you pat tax on $31200, no tax relief on interest paid though
b.) you take money from offset and put in property B offset, you pat tax on $31200, get tax releif on 40k
which is the better option here?
@trapper: Seriously are you that dense to follow what the point of this is. Surely your taking the piss, I hope so otherwise I can’t explain this any simpler, and I’ll leave you to your own flawed thoughts.
I have never once said this is an investment property, you get it, I know it is his ppor.
The point is if it becomes an investment property he can not get tax relief on the interest he pays.
If you still do not follow what the point of why redraws suck vs offset, then go see an accountant or give the ato a call
@Donaldhump: You're the one missing point mate.
You asked why he doesn't get an offset account instead and put it there.
The answer is that this is his family home. He isn't getting any tax deduction any way he structures this.
He definitely isn't going to move out and then rent his family home out to someone else.
@trapper: "He definitely isn't going to move out and then rent his family home out to someone else."
you know that for sure, does the OP know that for sure?
what a stupid comment, thats like saying not to get car insurance as you are not going to have an accident.
"He isn't getting any tax deduction any way he structures this."
I don't recall saying he can "whilst" it is his PPOR…. notice the emphasis on whilst.
why trap yourself into such a limiting situation, when on offset account fully loaded acheives the same thing with tax advantages and complete control of your money.
need a 100k in a hurry to pay for your stroke, heart attack, legal fees, opportunity of a lifetime investment, then no need to go into the bank. Redraw account can be picked at at anytime by a bank.
all good though, you go pay cash for your house, and lo and behold you get a wicked job offer in another city, you can sell it and rebuy, because your now PPOR is positively geared to the max but you cant claim any tax deductions, meanwhile paying shit tonne of interest in your new place because your money is stuck.
give me one advantage of paying your house off, eagerly awaiting replies.
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Invest the savings and you will make more than the increase on your HECS debt. If you are going to do absolutely nothing with the money but let it sit in a bank account earning 0.1% interest then you should pay it off.
Chuck her on the S&P? lol
What exactly makes more than 3.6 and is risk freee
Nothing is risk free but a non-brand new apartment near a university or the city centre should return a decent amount
Not student accomodation though!
Past performance is not indicative of future results
AMP Term deposits, currently over 4% for 5 years.
That income is taxed. so take that 4% and lop off 32% of that or worse.
@surg3on: I thought if, like OP, you weren't earning enough to have to pay HECS off you wouldn't be getting taxed much either, but I don't know what the cutoffs are.
There are decent rates that can be found as the market is heading south and interest rates on saving will increase. Some examples for a normal savings account would be 1.0-1.5% with companies like ING (that can still be access without penalty), which normally require a few things (like growth you're saving and using your card) or Macquire bank term deposits, which offers the rates below (paid yearly)
Interest (Paid Yearly)
1 Year/s: 2.75% p.a.
2 Year/s: 3.30% p.a.
3 Year/s: 3.35% p.a.
4 Year/s: 3.50% p.a.
5 Year/s: 3.50% p.a.
That's what they do in the U.S.S.A. even if you declare bankruptcy your 'student loan' (which is what the scheme is called over there) is exempt and you are lumbered with it for life. The government has the younger generation by the balls for over a trillion dollars. I think Creepy uncle Jow was going to forgive the debt or change the rules somewhere but I don't know if he actually has.
(I stand corrected, it's nearly 2 trillion now. )
https://www.kustguide.net/2022-student-loan-debt-stats-a-rec…
"Student loan debt in 2022 is now over $1.7 trillion.
The latest student loan debt statistics for 2022 show that there are 45 million borrowers who collectively owe approximately $1.7 trillion in student loan debt. Student loan debt is now the second highest category of consumer debt – just after mortgage debt and higher than debt for credit cards and car loans."
you are lumbered with it for life.
And?
You take out a loan, you should rightly be forced under law to pay it back. In what world do you think it's ok to enter into a contract and then not have to fulfill your end of the deal?
Imagine being so entitled that you think legal contracts shouldn't apply to you…
My aren't we precious.
When we are raised to believe that these bit of university paper are necessary to participate in society profitably and with a lot of workplaces demanding them regardless of your skills and experience then it is arguable that such things are even optional any more. As others have pointed out, they used to be 'free' and the argument went along the lines of more highly educated people will earn more money and therefore pay more tax and society will be compensated for their investment in that persons education. But now it has simply become another cynical government revenue and control apparatus with no guarantee of superior employment. I have a SIL with a Phd in science who couldn't even get a job in Australia and ended up in I.T.
A citizen should NEVER be indebted to government and many have written on the dangers of it.
Now if it were a car or house then I wouldn't disagree with you on this point but as it is something that is marketed to us as 'necessary' replete with promises of worldly success upon acquisition then at the very least all interest should be dropped on the debt. Maybe if university degrees came under the same consumer laws as other products you might have a point.
My aren't we precious.
Well you seem to be. Contract law has been a fairly well understood legal concept for thousands of years, but this is the first generation that feels like they should be immune from fulfilling something they agreed to in writing.
but as it is something that is marketed to us as 'necessary' with promises of worldly success upon acquisition then at the very least all interest should be dropped on the deb
On man, so precious…
Here's another idea, if you don't agree to the terms, don't sign the contract. Or do you need a trigger warning before reading that?
@1st-Amendment: I don't and I haven't.
So can I have I have that high paying job anyway?
As I said, 'consumer law'….same should apply to movies these days while we're at it. :)
@1st-Amendment: Do you think this first generation feels this way because uni is more expensive, cost of living is more expensive and choice for employment without a degree has been reduced as employers keep asking for more?
@EightImmortals: It was only free for 9 years and even then there weren’t many people attending University.
No one raised us into thinking we needed a piece of paper to be successful and finding a job.
Quit making excuses for your poor decision making skills. Accept some accountability.
Grave it.