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Hewison Insights

Should you prioritise your HECS / HELP debt?

Michael Peart
Senior Associate Adviser
5 Oct 2022

For anyone that undertook tertiary education, there is a high probability they received funding from the government under the Higher Education Loan Program (HELP). 

Although this blog is specific to those that have accumulated debt through study, I can guarantee if you don’t have HECS-HELP debt, you know someone that does. 

For anyone that undertook tertiary education, there is a high probability they received funding from the government under the Higher Education Loan Program (HELP). 

To set the scene, HECS-HELP debts do not attract interest but are indexed to the Consumer Price Index (CPI), a measure of the cost of living. 

This loan is repaid depending on your level of taxable income. If you earn less than $48,361, you don’t pay anything. Between $48,361 and $55,836, you’ll pay back 1% of your taxable income annually. Repayments increase incrementally up to 10% for those earning over $141,848 per annum.  

From 1 June this year, the indexation rate applied to HECS-HELP debt rose to 3.9 per cent – up from 0.6 per cent in 2021 and the highest in 10 years. 

Prior to the pandemic, the indexation rate averaged about 2 per cent — roughly half the rate of this year’s increase. 

With wages only increasing 2.4% over the last year, it’s becoming a challenging environment when CPI (3.9%) and HECS-HELP debt is growing faster than wages. As a result, individuals with surplus cash may be considering making an early repayment. 

Focus on other debt

From a debt perspective, HECS-HELP debts are arguably the cheapest debt you can get. If you have any other debts – mortgage, credit card, and car loans – you would prioritise the repayment of these over your HECS-HELP debt as the indexation maintains the debt value in real terms, whereas the other loans are interest bearing. 

In the event you lose your job, you’re not required to make HECS-HELP debt repayments. Unfortunately, you don’t get this flexibility with a mortgage, car loan or credit card repayments.  

No other debt?

If you are otherwise debt-free, repaying HECS-HELP becomes a significant consideration, however, you should consider your individual circumstances and long-term financial objectives. 

If you pay your HECS-HELP loan off, you receive a guaranteed return, however, forgo the ability for that capital to achieve long-term growth compared to if you were to invest it. You also can’t redraw any repayment amount. 

Depending on your situation there could be other options to consider – if you’re approaching retirement, you could contribute the money to superannuation instead, earning a tax deduction along the way. If you’re saving for a house deposit, it might make sense to prioritise increasing your savings capacity over repaying your student debt. However, all debt is assessed when applying for a mortgage and may affect your borrowing capacity. 

Overall, there is no perfect answer and is dependent on individuals’ circumstances.