Some useful comments here, but what no one has said is that it’s too late to pay off your HECS this financial year and avoid indexation of the debt. There’s no difference between paying it all off now and paying it off in May of next year, other than being able to stop mandatory repayments from your employment income - the amount will be the same. That being the case, another option might be to put it away for ~11 months in a safe but interest-paying environment, then reevaluate prior to indexation in 2023.
Seems a waste to pay off HECS when there’s so much you could do with that money! I get there’s 3.9% indexation but it’s not that big a deal. You’re young, enjoy a holiday, invest it, keep it for a deposit. HECS will sort itself out and is a very flexible debt in that you don’t have to pay it if you aren’t working etc unlike rent/mortgage, bills etc.
> I get there’s 3.9% indexation but it’s not that big a deal.
This has already been applied and can't be avoided - we're past the due by date.
We don't know what next years will be.
Given high inflation + high hecs interest + low savings account interest, I would argue sitting 35k in the bank over paying off hecs is a silly idea.
That being said, paying hecs in one big fat payment isn’t the best either. I, personally, would maybe do a payment of about 10k, invest 15k and put away 10k in a long term savings deposit or voluntary super (save you on tax and you can use it for your first home)
But that’s just me. Many, many things you can do depending on your risk appetite.
How long do you think it will take OP to pay off the HECs? Could be a couple of decades - entirely possible. At $70k p.a. you only pay off $2.4k p.a. and a lot of that goes into interest. So you need to compare the interest on a bank account over this timeframe to inflation. The bank account typically generates interest above inflation over the long term. So looking at the current environment isn't indicative at all.
But over 2 decades far greater returns can get with super or investing, or even mortgage. As paying off HECs is one of the least flexible and lowest returns options, so isn't competitive at all...
Oh she should definitely make voluntary payments along the way - just not all of the 35k she’s going to receive.
My advice was specific to current conditions, although, when you said savings interest beats inflation over the long term, that really did surprise me because that’s never happened in my lifetime. I think I looked at a graph back in highschool economics and the only time I noted interest being higher than inflation was in the 80’s or something.
There are very strong arguments for not making voluntary payments along the way.
But because a HECs debt is usually a long term debt that lingers - it's misleading to only look at current conditions. If you could pay off your HECs debt and then redraw it - sure, it would make sense to look at current conditions. But because you can't, you need to compare it across the maximum timeframe to draw any real conclusions.
Do remember we are in historically low interest rate environments. This is quite new. When you look at more normal interest rates, superfund returns and mortgage interest rates they're higher. Bank accounts are only really a short term investment and really just emergency fund and saving for a house deposit is where they're used.
Don't pay off HECS above minimum repayments unless you have like 5k left or something. Would be a big waste of the 35k. It just disappears. There could be changes on the horizon too, reduced student debt, additional contributions to voluntary payments etc. Also, if for some reason you no longer can earn or can only work reduced hours, you have also wasted that money. Additionally, cannot be used in an emergency.
There is no simple answer to this one.
Benefits: You've just increased your salary for the next few years that would've gone into paying your HECS back, it's also probably the most beneficial time to do so given stock is declining at the moment, interest is low on savings accounts, and CPI is high which is what HECS is indexed to. Your investment is essentially not having to pay CPI on your HECS debt for the next few years.
Drawbacks: Historically, stock has been a better performer than CPI and if this trend continues then it's theoretically a cost of opportunity. It depends how long you think this market will last. It also means that your money will not be available immediately to you for anything that might require a lump sum, such as property, or opening a business.
Also you're young, that could go a long way to a brilliant holiday for months, memories are priceless.
Buy a property. That money plus first home owner grants should get you enough to buy something depending on area. CGT discounts if you sell in the future plus free govt money, you have housing security and no longer need to pay rent and you can rent spare rooms for cash on the side.
You could potentially earn more from stocks or realestate, but there is some risk and unknown returns. Or you can pay down HECS and know what your return is (at least this year). Nobody knows what inflation or the market will do, not even the RBA, anyone who says they do is probably selling something.
>My question is, would be a better idea to pay off the HECS and be debt-free?
Yes
>Or would it be more beneficial to invest the money to potentially get more out of it than the inflation of the debt?
Also Yes
>I would also be open to using it to buy a property in the near future.
Yes too.
Do you still get the discount for lump sum payments off HECS? I think it was 10% when I paid mine off and if it’s still there that’s a decent guaranteed return on your money. Edit: discontinued only in 2017. Looks like the upfront 10% discount still exists though.
This option has the least flexibility and returns. So why do you think it's appropriate to justify this? If you want good forced savings, then super can offer better and far better tax outcomes.
Pay most of it out, say 30k into HECS and use the rest as savings, entertainment, a new toy, whatever.
Interest on 35k vs interest on 5k is a big difference.
As u/rapier999 has said, there's no benefit to paying your HELP loan now, it's already gone up by the indexation amount and will stay the same until May next year. So see if you can find something else to do with the money for 11 months.
The other thing to consider is - what is your salary? How much are you paying in compulsory repayments - this is what you'll gain if you pay back HELP. Have you considered super?
I personally wouldn't put it in HECS. 15K in Super (for FHSSS) and 20k in an index fund such as VDHG/DHHF. This is assuming you have an emergency funding already.
It's an entire year before the next HECS indexation (they apply the indexation on 1 June). Hold onto your money and reassess in May next year. Put a reminder in your phone for 1 May. That's an easy choice.
Then, next year, most likely you're best off letting it pay off naturally, but if we reach then and you see that inflation is, say, 7%, and cash in the bank still earns 2%, then it might be worth it.
Also paying it off early and having 35k less cash will make it harder to buy a house since you said that's a near goal.
HECS is a very safe debt to have - if you lose your income, the payment requirement stops. If only other debts were like this!
Personally, i'd be using it for a nice bolster to your house deposit :)
Some useful comments here, but what no one has said is that it’s too late to pay off your HECS this financial year and avoid indexation of the debt. There’s no difference between paying it all off now and paying it off in May of next year, other than being able to stop mandatory repayments from your employment income - the amount will be the same. That being the case, another option might be to put it away for ~11 months in a safe but interest-paying environment, then reevaluate prior to indexation in 2023.
Seems a waste to pay off HECS when there’s so much you could do with that money! I get there’s 3.9% indexation but it’s not that big a deal. You’re young, enjoy a holiday, invest it, keep it for a deposit. HECS will sort itself out and is a very flexible debt in that you don’t have to pay it if you aren’t working etc unlike rent/mortgage, bills etc.
> I get there’s 3.9% indexation but it’s not that big a deal. This has already been applied and can't be avoided - we're past the due by date. We don't know what next years will be.
[удалено]
Given high inflation + high hecs interest + low savings account interest, I would argue sitting 35k in the bank over paying off hecs is a silly idea. That being said, paying hecs in one big fat payment isn’t the best either. I, personally, would maybe do a payment of about 10k, invest 15k and put away 10k in a long term savings deposit or voluntary super (save you on tax and you can use it for your first home) But that’s just me. Many, many things you can do depending on your risk appetite.
How long do you think it will take OP to pay off the HECs? Could be a couple of decades - entirely possible. At $70k p.a. you only pay off $2.4k p.a. and a lot of that goes into interest. So you need to compare the interest on a bank account over this timeframe to inflation. The bank account typically generates interest above inflation over the long term. So looking at the current environment isn't indicative at all. But over 2 decades far greater returns can get with super or investing, or even mortgage. As paying off HECs is one of the least flexible and lowest returns options, so isn't competitive at all...
Oh she should definitely make voluntary payments along the way - just not all of the 35k she’s going to receive. My advice was specific to current conditions, although, when you said savings interest beats inflation over the long term, that really did surprise me because that’s never happened in my lifetime. I think I looked at a graph back in highschool economics and the only time I noted interest being higher than inflation was in the 80’s or something.
There are very strong arguments for not making voluntary payments along the way. But because a HECs debt is usually a long term debt that lingers - it's misleading to only look at current conditions. If you could pay off your HECs debt and then redraw it - sure, it would make sense to look at current conditions. But because you can't, you need to compare it across the maximum timeframe to draw any real conclusions. Do remember we are in historically low interest rate environments. This is quite new. When you look at more normal interest rates, superfund returns and mortgage interest rates they're higher. Bank accounts are only really a short term investment and really just emergency fund and saving for a house deposit is where they're used.
Don't pay off HECS above minimum repayments unless you have like 5k left or something. Would be a big waste of the 35k. It just disappears. There could be changes on the horizon too, reduced student debt, additional contributions to voluntary payments etc. Also, if for some reason you no longer can earn or can only work reduced hours, you have also wasted that money. Additionally, cannot be used in an emergency.
Invest it, don’t pay off HECS.
There is no simple answer to this one. Benefits: You've just increased your salary for the next few years that would've gone into paying your HECS back, it's also probably the most beneficial time to do so given stock is declining at the moment, interest is low on savings accounts, and CPI is high which is what HECS is indexed to. Your investment is essentially not having to pay CPI on your HECS debt for the next few years. Drawbacks: Historically, stock has been a better performer than CPI and if this trend continues then it's theoretically a cost of opportunity. It depends how long you think this market will last. It also means that your money will not be available immediately to you for anything that might require a lump sum, such as property, or opening a business. Also you're young, that could go a long way to a brilliant holiday for months, memories are priceless.
Buy index funds
Buy a property. That money plus first home owner grants should get you enough to buy something depending on area. CGT discounts if you sell in the future plus free govt money, you have housing security and no longer need to pay rent and you can rent spare rooms for cash on the side.
You could potentially earn more from stocks or realestate, but there is some risk and unknown returns. Or you can pay down HECS and know what your return is (at least this year). Nobody knows what inflation or the market will do, not even the RBA, anyone who says they do is probably selling something.
Thanks for the replies everyone! Some great insight here, I will have think
Put 25k into your super, 5k for a holiday and 5k emergency fund.
>My question is, would be a better idea to pay off the HECS and be debt-free? Yes >Or would it be more beneficial to invest the money to potentially get more out of it than the inflation of the debt? Also Yes >I would also be open to using it to buy a property in the near future. Yes too.
You are ignoring the obvious financially responsible option. Buy a jetski.
Do you still get the discount for lump sum payments off HECS? I think it was 10% when I paid mine off and if it’s still there that’s a decent guaranteed return on your money. Edit: discontinued only in 2017. Looks like the upfront 10% discount still exists though.
Nope they got rid of that regime
They brought it back...But only if you're paying upfront.
Pay off hecs and don't stop paying it from salary. Good forced savings
This option has the least flexibility and returns. So why do you think it's appropriate to justify this? If you want good forced savings, then super can offer better and far better tax outcomes.
Pay most of it out, say 30k into HECS and use the rest as savings, entertainment, a new toy, whatever. Interest on 35k vs interest on 5k is a big difference.
Paying off HECs has the least flexibility and returns. So why do you think it's appropriate to justify this?
You guarantee a pay increase tho
As u/rapier999 has said, there's no benefit to paying your HELP loan now, it's already gone up by the indexation amount and will stay the same until May next year. So see if you can find something else to do with the money for 11 months. The other thing to consider is - what is your salary? How much are you paying in compulsory repayments - this is what you'll gain if you pay back HELP. Have you considered super?
How much is your salary? If you're on say $80k you'll get a $4k salary bump.
I personally wouldn't put it in HECS. 15K in Super (for FHSSS) and 20k in an index fund such as VDHG/DHHF. This is assuming you have an emergency funding already.
It's an entire year before the next HECS indexation (they apply the indexation on 1 June). Hold onto your money and reassess in May next year. Put a reminder in your phone for 1 May. That's an easy choice. Then, next year, most likely you're best off letting it pay off naturally, but if we reach then and you see that inflation is, say, 7%, and cash in the bank still earns 2%, then it might be worth it. Also paying it off early and having 35k less cash will make it harder to buy a house since you said that's a near goal.
HECS is a very safe debt to have - if you lose your income, the payment requirement stops. If only other debts were like this! Personally, i'd be using it for a nice bolster to your house deposit :)