Should I pay off my HECS (Aussie student loan) debt?

[Mikaelus]

I owe about $7000 in HECs debt from when I got a degree a few years ago.

In other countries like the US, student debt is very onerous, but this debt only appreciates at the same rate as the CPI (last I checked it was 2%p.a.).

My question is, should I pay this off?

I mean I probably will have to eventually, but should I be in any hurry to do so? What are my options here?

[bigchrisb]

Are you currently having it deducted from salary because you are over the earning threshold?   

If so, you can game the repayments of HELP a little.

1. There is a discount of 5% for voluntary repayment (up till 1 Jan 2016, then abolished).
2. The interest is applied in one batch, I think around the end of May.  Google this.
3. The interest isn't tax deductible.
4. The repayment for your prior tax year is put onto the balance when you finish your tax return (check this).

So, if you are going to pay off your HECS debt in the next two years through the mandatory payments, consider paying it all out just prior to the HECS indexation date.  That means you get an instant 7% risk free, tax free return on the money.  You get one years worth of this back in your tax refund - assuming it has been deducted through the year.

Its not as attractive as it was with the larger% discounts, but if I were in that category, I'd still consider it.  If you are not making mandatory repayments, its pretty cheap debt, and I wouldn't stress about clearing it.

[Mikaelus]

Hmmn, interesting... hadn't thought of that...

I don't think I am making mandatory repayments (that only kicks in when the debt is over $30K, right?). I'm not really in a hurry to pay it back, but I kind of hate debt and there's always the slight chance the government could make payments manadory or increase the interest rat or something (although that seems unlikely).

[alsoknownasDean]

Repayments are based on your taxable income. If your income is above the threshold (approximately $53,000pa), then repayments will be made.

By the way, the government unsuccessfully tried to increase the rates in last year's budget. :)

If you're on over $53K, then don't sweat, it'll be paid off in a few years anyway through mandatory payments. It's currently indexed at CPI, so it's pretty cheap debt.

[vagon]

I would hold off. This debt is extremely cheap 1-3% p.a. usually and you can use the excess cash to invest in the ASX index and expect 8%. Meaning while you hold this debt you can work the difference.

If things change and you are confident the mandatory repayments will kick in, I'd reconsider. I'd say its probably still worth holding off, you're young and the 5% risk free guarantee still doesnt stack up against the historic long term return on shares.

I would build a spreadsheet model and figure out where the break even is.

[Mikaelus]

alsoknownasDean, yeah, I saw they tried to increase the rates. That's what got me thinking about this... if they managed to increase the rate I guess I'd just pay it off instantly.

vagon, I think you're thinking what I'm thinking. Since it's such cheap debt, it's not a priority right now. I'll just keep an eye on it.