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Your HECS debt will get $923 bigger in June - here’s why

·3-min read
women graduating from university and man holding money
The Higher Education Loan Program (HELP), previously known as HECS, is an interest-free loan offered by the Federal Government to eligible students. (Source: Reuters, Getty)

On June 1, your HECS-HELP debt is going to get bigger.

That’s because the Higher Education Loan Program (HELP) (previously known as HECS), is tied to inflation, which has been surging over the past few months.

In the March 2022 quarter, Australia got a nasty surprise when the consumer price index (CPI) rose 2.1 per cent and 5.1 per cent annually - a much bigger increase than expected.

Due to the rise in inflation, the indexation rate on HELP debts will be 3.9 per cent come June, financial planner Ben Brett said, which would be a stark difference to the 0.6 per cent increase last year.

That means the average HELP debt of $23,685 will increase by $923.71.

“This is a big change,” Brett said.

Because your HELP debt is an interest-free loan courtesy of the Federal Government, it’s often considered the least urgent debt to pay off compared to credit cards or home loans that accrue interest.

Former students typically pay off their loans gradually through compulsory repayments that kick in once you start earning more than $46,620 a year, with the repayment rate increasing each time you get a payrise.

However, Brett said the latest developments shifted this narrative.

“It sort of makes you think about the traditional advice, which is there is no need to pay off your HELP quicker and to focus on other things,” he said.

“Whilst HELP debt is sometimes referred to as ‘good debt’ as it can lead to a much higher income throughout your life, having debt is not desirable and paying it off early can help you achieve your financial goals.”

So, does that mean you should start prioritising voluntary repayments?

Brett said it came down to your individual situation.

For example, a lot of young people are focused on saving to get into the property market, and would likely remain focused on saving their deposit.

However, for people with excess money floating around, Brett said it was “potentially a good idea to think about whether applying excess money to your HELP debt fits with your grander plan”.

He said this might apply to people who had bought their homes and were ahead of their repayments and were in the fortunate position of wondering what to do with their excess cash.

“Suddenly, paying off your HELP debt may be a good place to apply it because, essentially, you're getting a 3.9 per cent return on that by paying off that debt.”

He also said people who had the capacity to make a loan repayment before 1 June would benefit because that amount would not be counted towards your indexation.

“You need to ensure, however, that you make the payment early enough to allow the payment to be received by the ATO and processed.”

Is this better than investing it?

For some people, paying off this debt may stack up more than investing it because a 3.9 per cent return is a sure thing.

“Every dollar you put in, you're essentially making a 3.9 per cent return guaranteed, because that's going down, it's not changing,” he said.

Whereas when you're investing, returns are not guaranteed.

Plus, you also have to pay tax on any returns you make on investments, Brett said.

However, he stressed these decisions were all highly dependent on your individual circumstances, your risk tolerance, and what you were trying to achieve.

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