HECS debt to skyrocket by $1,245 next week: Should you pay it off early?
Millions of Aussies will see their HECS debt rise again on June 1 when the government’s yearly indexation is applied. For someone with the average student debt of $26,494, their balance will increase by an eye-watering $1,245.
The government now wants to cap the indexation rate to be whichever figure is lower out of the Consumer Price Index (CPI) or the Wage Price Index (WPI). When legislated, this will be backdated to June 1, 2023, which means last year’s mammoth 7.1 per cent hike will be lowered to 3.2 per cent, while this year’s 4.7 per cent rise will be adjusted to 4 per cent.
While this means Aussies will now have some $3 billion worth of student debts wiped, it doesn’t change the fact that balances will still be going up next week. So, if you are able to, is it worth paying off your HECS debt early and avoiding another indexation hit altogether? A finance expert told Yahoo Finance the answer isn't black and white.
Are you worried about your HECS debt? Share your story with tamika.seeto@yahooinc.com
Like most money matters, financial adviser Helen Baker says the answer will depend on your personal circumstances including your income, where you are getting the money from and your future financial plans.
“If you are having to borrow money, for example, in order to pay that off, if the borrowing rate is at the 7 per cent mark that doesn’t make sense,” Baker told Yahoo Finance.
“Are you breaking into an investment to do it? Have you got money sitting in cash doing nothing? Maybe in that case it does make sense to clear some off.”
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Baker recommended people look at their plans for the next few years, including any plans to buy property or have a baby, and factor in how paying down your HECS debt could impact things.
“What tax bracket are you in? What commitments are you looking forward to? What things might change in your lifestyle going forward in the next few years? Look at all that together to work out whether it makes sense and how much makes sense,” she said.
Once you repay your HECS debt early, you also can’t get it back and use it towards other things, Baker noted. That’s unlike paying extra on your mortgage, where you can usually redraw some of it.
Should I pay off HECS debt if I am saving for a house?
Baker said there are a few factors to consider here.
