HECS Repayments: 5 Tips to Repay Your HECS Debt Fast
Every student: Should I be paying off HECS early?
HECS Repayments: 5 Tips to Repay Your HECS Debt Fast
You’re probably thinking, why on earth would someone want to pay off their HECS debt faster than they need to? Is it really worth repaying your HECS/HELP debt early or is your money better spent elsewhere? It all comes down to your personal circumstances — your income, your expenses, your goals and aspirations — and what is most important to you.
We explore the advantages of making early HECS debt repayments and what factors to consider before doing so. But first, let’s quickly go over the basics.
What is HECS-HELP?
HECS-HELP are student loans provided by the Australian government and are accessible by students who are enrolled in higher education and meet all the requirements. HECS eligibility requirements can include; must be studying in a Commonwealth support institution, you meet citizenship and residency requirements.
This means if you’re an eligible student, the government essentially pays the amount of the loan directly to your educational institution, acting as both a loan and student discount.
Learn more about HECS Loan Repayments — when do you start repaying your HECS debt, the HECS threshold 2021, repayment rates, and how to check HECS balances.
What are the advantages of paying your HELP debt early?
Just like any other form of debt, your HECS student loan will gather interest over time, although it will be at a very low rate compared to other forms of credit such as a mortgage or car loan.
Although there is no interest payable on your HELP debt, an indexation is still applied based on changes to cost of living on June 1st, with the indexation rate for 2021 sitting at 0.6%.
Naturally, you have to start repaying your HELP debt when your repayment income reaches the minimum HECS repayment threshold (2021) amount, which currently sits at $46,620. However, making early payments can HELP make paying off your HECS debt in Australia easier and faster.
You won’t be charged interest
With record low HECS interest rates like that, we can see many reasons why you’d want to simply forget about repaying HECS faster. However, making early voluntary HECS repayments before 1st of June, providing it has been processed in time, means you won’t be charged interest on the amount paid.
Start saving for more important things
Of course, the biggest advantage of paying off your HECS student loan early is that you can start saving for more important things in life a lot sooner. As experience has shown, the older you get the more expenses you accumulate. It’s like all your debt gets together once a month to play the mobile game Snake.
What factors should you consider before making early HECS repayments?
- What are your priorities — maybe you want to travel, maybe you’re saving for a car or a home loan deposit — what’s more important to you at this point in your life and career.
- Do you have any other forms of debt — most other types of loans, such as car loans, credit cards, home loans and personal loans usually have higher interest rates and compound much quicker over time. So, it would make sense to pay off these loans faster.
- Other investments — can you earn more money than the amount indexation applied on your HELP debt by investing your money elsewhere?
- Credit rating — although paying off higher interest loans is better for your credit rating, the bank will take into account your HECS debt or HELP debt when applying for a home loan and affect how much you’re able to loan out.
5 Tips to repay your HECS debt quickly
- Keep all your receipts
Keeping your receipts will help you claim on as many deductions as possible. This will help you reduce your repayment income and minimum yearly compulsory repayment amounts.
- Claim as many deductions as you can!
As mentioned above, the more deductions you can claim, will help reduce your repayment income.
- Make voluntary repayments
Making voluntary repayments to reduce your HELP debt before June 1st will help you avoid being charged interest on the amount you just paid. This is because debt naturally increases annually based on the cost of living (Consumer Price Index).
- Check your HECS debt
Is your compulsory HELP repayment looking a little larger than usual? Check your Tax Return for any large tax payables due to your HELP repayment, and double check with your employer to ensure they are taxing you correctly.
- Speak to an Accountant
Thinking about making a big voluntary repayment? Want to pay off your HELP debt faster? It is generally recommended to make a contribution before you lodge your Tax Return. Speaking to a qualified Tax Accountant for personal advice and assistance (eg. if you’re using the OCL app, you can speak with our friendly numbers geeks anytime, no appointment necessary) helps you avoid paying interest on early repayments and maximises your Tax Return.
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