The University semester has just kicked off and thousands of new students are gearing up for a new chapter of instant Ramen, wacky parties, all-nighters for exams and accumulating a HECS/HELP debt.
On average, your HECS/HELP debt will take nearly 9.5 years to fully pay off - so whether you’re a freshie just starting Uni, or you've finished higher education years ago, it’s important to understand how it all works.
Quick recap on HECS/HELP debts:
The HECS/HELP scheme is where your University or higher education fees are paid up-front by the government. The government then gives you an interest-free loan to repay your student fees later.
And you only need to start repaying the loan when you reach a certain income level (in the 2023-24 financial year, this amount is $51,550 per annum).
Now, most of us know that we have a HECS/HELP debt, but the details can get a bit complicated.
In fact, more than 61% of the Flux fam who have taken out a HECS/HELP debt don’t actually understand what they’re getting themselves into.
So let’s debunk all of the myths to help you understand the ins and outs.
Okay yes, that’s kinda true. While you don’t pay any interest on your HECS/HELP debt, you do pay indexation.
Basically, the government updates HECS/HELP debts according to inflation figures, which is called indexation. While the government isn’t charging a fee for HECS/HELP debts, indexation ensures that repayments reflect the real value of money at that time.
Indexation is added to your debt on 1 June each year. And when inflation went beserk last year, it meant your HECS/HELP indexation jumped by 7.1%.
Yes, having thousands of dollars of student debt isn’t exactly a comforting thought, but it’s important to acknowledge that just because HECS/HELP is a form of debt, it doesn’t make it evil.
HECS/HELP is often considered ‘good debt’ because it’s low interest/indexation and is somewhat considered an investment (in your career).
And while paying off your HECS/HELP debt can feel good, it’s also important to think about the ‘opportunity cost’. In other words, it is better to put that additional money towards paying down more expensive debts, investing, or saving for a house deposit?
It’s a personal decision whether or not to repay HECS/HELP debt early but you need to consider your financial situation goals to help you make the decision.
This might be a touch morbid, but there’s a major bright side too.
Your HECS/HELP debt dies with you. If you have outstanding HECS/HELP debt when you pass away, your next of kin won’t be responsible for it.
If only this were the case…
Like any other form of debt, your HECS/HELP debt will impact your borrowing capacity.
Banks will take your student debt as well as your savings, and earning potential into account when they decide whether or not they want to lend you money.
Ultimately, understanding the HECS/HELP system and keeping your financial goals in mind will help you make the best informed decisions for yourself.
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