Poll

I've got a HECS/HELP debt, what should I do with it?

Hair on fire! Get rid of it ASAP!
0 (0%)
Let it go down naturally, pay it off in full once the interest rate changes.
2 (50%)
You're paying it off, just wait for it to pay off naturally.
2 (50%)

Total Members Voted: 4

Author Topic: HELP debt (Australia) What to do?  (Read 1861 times)

alsoknownasDean

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HELP debt (Australia) What to do?
« on: July 20, 2014, 02:47:34 AM »
Hello all,

Long story short, I finished uni in 2012, and I currently have a HECS/HELP debt of around $14-15,000.

For those who don't know, that's essentially government provided student loans for university here in Australia, and payments are only deducted once your income is above a certain level. I've recently started a new job which is above said level (my previous job was below the threshold). The balance is currently indexed at CPI (~2.5%), but will shift to the 10 year bond rate from 2016 (capped at 6%). I'd say if I leave things as they are about $3000 a year of my salary will go towards servicing the debt.

Essentially, I've got three options. I can pay the debt off as quickly as possible (I don't have all of that amount in savings yet, but should before the end of the year). I can pay it off via the tax system over the next couple of years and pay the balance off once the rate changes in 2016, or I can just continue paying it off as per normal.

I kinda think I can get a better rate investing the money in something else rather than repaying my low-interest HECS debt. At ~2.5%, I couldn't borrow money at that rate, and could get better returns from investments. Once the interest rate charged is changed, it might be more worthwhile to focus on paying it off.

For additional information, I am currently saving just over 50% of my post tax/post HELP salary. Given a few minor lifestyle changes I can get this towards 55% (60% with some more serious changes). I have no other debts.

What does everyone else think? Is my hair on fire?

stripey

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Re: HELP debt (Australia) What to do?
« Reply #1 on: July 20, 2014, 03:31:26 AM »
I know it's not good netiquette to link to a post one started, but here goes- it has a few different perspectives provied:

http://forum.mrmoneymustache.com/ask-a-mustachian/should-i-think-about-making-voluntary-repayments-on-my-hecs-debt-%28australia%29/msg295513/#msg295513

Upshot is, at the moment I'm going to have the money sitting there waiting to be pay it off in full by 1 Jan 2016, but only pay it off if (bond rate/CPI + 5% government co-contribution) makes it worthwhile for me to do so. Presently I can get a better return elsewhere (even in a term deposit), so no voluntary contributions from me for the time being. Also if for whatever reason I had personal debt or acquired a mortgage, I'd be paying that off as a greater priority.

All up, I don't think your hair is on fire... and neither is mine, despite my HELP debt being at least double yours.

marty998

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Re: HELP debt (Australia) What to do?
« Reply #2 on: July 20, 2014, 05:23:11 AM »
Relax. Just let it gradually reduce naturally. In the final year you can pay off the balance early to avoid the indexation that is applied on 1 June each year.