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Is paying off your HECS debt early the smart move? Experts weigh in

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Thinking of repaying your student debt early? Worried about its impact on your ability to get a home loan? Here's what to consider.

With the inflation rate at 7.8%, the highest it's been in over 30 years, you might be considering whether you should pay off your HECS-HELP debt early.

We've spoken to some experts to see if it's worth repaying your student loan early or if you're better off investing your money elsewhere.

How long will it take me to repay my loan?

The time it takes to repay your student loan varies based on multiple factors including your degree, university and salary.

You begin paying your HECS debt if you earn above $48,361 in the 2022/2023 income year.

Your repayments gradually increase, from 1% to 10% of your income as you earn more (with repayments calculated separately and before income tax). For example, if you earn between $48,361 and $55,836, your repayment will be 1.00% of your income. However, if you earn $141,848 or anything above this amount, your repayment will be 10.00% of your income.

Should I repay my student loan early?

With a current indexation rate of 3.9%, you might be thinking of repaying your student loan early.

To put this into perspective, an indexation rate of 3.9% means that a $25,000 balance would increase by $975.

However, paying off your HECS-HELP debt early could come at the cost of other investment opportunities that could have earned you more money in the long run. For example, you could instead put this money into a high interest savings account.

HECS-HELP debt doesn't accrue interest monthly, unlike a credit card or personal loan. So if you have those debts, it's a good idea to repay those first.

Additionally, if you were to lose your job or take time off work, you won't have to make your repayments. This isn't the same for other debts.

Another thing to consider is whether or not you have any emergency savings on hand in case of an unexpected large expense. If you don't, it may not be wise to put all your spare cash into your student loan.

Let's hear from some experts

Particularly in a higher inflation world, yes, it is worth paying off your HECS-HELP debt early. With an expected increase in indexation by over 7% from 1 June 2023, this will start to more substantially increase the amount of these interest free loans that students have been used to.

If you have the capacity to make voluntary repayments on your debt, it is a good idea to do this before the indexation for the next year applies on 1 June. However, it is also important to remember that any voluntary repayments you make are not refundable.”

Kerrie-Lee Lord, financial adviser at PSK Financial Services

Yes, student loans are increasing quite a bit this year due to the big rise in inflation. However, it's still likely to be much lower than most other loans or forms of credit you have. If you've got other high interest debt, such as credit card debt, the interest rates are likely to be much higher so it's worth paying these off first before you look at your student loan. There are other factors to consider too when deciding whether or not to pay off your student loan. First, not everyone can afford to pay off their student loans upfront. If this is you and you don't have any other high interest debts to repay, consider putting the money you do have into a high interest savings account to help give it a boost and earn some interest.

Should I instead put my money into a high interest savings account?

With the interest rates of savings accounts so high, now is a great time to put your extra cash into a high interest savings account. If you don't have any other high interest debts to repay and already have your money in a savings account, switch over to one with a higher interest rate.

Many savings accounts are now paying more than 4% p.a. For example, you can earn up to 4.75% p.a. with BoQ Future Saver, 4.55% p.a. with ING Savings Maximiser or up to 4.60% p.a. with Virgin Boost Saver.

Will having a HECS-HELP debt impact my entry into the property market?

Some lenders might treat HECS debt the same way they would treat regular debt.

Your lender will consider it when deciding your borrowing power. It can be helpful to have a look at how much you owe before applying for a home loan.

However, it could also be the opposite.

I thought having a $70,000 HECS debt would severely delay my entry into the property market. But, I purchased my first apartment last year at the age of 24 – in Sydney. I think the most important thing for me was to talk to a mortgage broker/bank. It was a great way to get an understanding of how much I could borrow as well as the government incentives available for my situation.

It also helped once I realised my first property doesn't have to be my forever home. This allowed me to choose a property within an achievable price range that I still love but will grow out of (and that's okay).”

Siena, 25, Sydney

The bottom line

Deciding to repay your HECS-HELP debt early is a big decision and depends on your individual circumstances. If you have other debts to repay such as credit card or personal loans, it might be worth repaying those off first as they accrue interest (unlike HECS-HELP debt).

Thinking about where you could invest your money? Check out our guides on high interest savings accounts and if HECS debt impacts your home loan application.

Image: @Dean Drobot via

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