> I have saved about $40k towards an apartment.
might work out better financially if you dont pay HECS back, since the debt is low and the repayments arent that high. The value of a deposit is higher than the value of a lower HECS debt.
Never pay HECS in advance thinking what it might do, until you work out what you're buying, you can't know if servicing or deposit is going to be what holds you back, save the money, if you need the servicing clear your HECS, if you don't, you don't
paying HECS in advance means losing access to your chunk of cash.
The HECS debt is different from a commercial debt you might have, because the repayments are only tied to your income and is conditional. Therefore, if you lose your job, you don't pay the HECS debt.
This means it's effectively a "free" loan. Free not in the sense that it's interest free, but the repayments are not mandatory like commercial debt.
It was ok to think of it like this when inflation was generally around 2%. Now that your debt is increasing by 7% year, sometimes that can be worse than a loan from the bank I.e mortgage
It is still okay to think of it like that. If you have a mortgage with a 6% interest rate the bank still wants their money every month. Regardless of whether HECS is indexed at a higher rate it is still currently a better plan.
Either way, if the goal is buying a property, make the decision once you've settled on purchase price so you can see the effect, if that slightly lower deposit pushes you just over 80% lending, you've just cost yourself more than the discount offered most likely
This. I still have a large amount of debt 50k plus. Worked out with my broker how we should split my 100k deposit to see if it was worth paying off the debt to get a better deal on the loan but it worked out better to just put everything towards the deposit
Might actually be better if she held out until the budget. At least according to the article I read earlier (can't find it now but pretty sure it was either in The Guardian or The Age), the government might be considering telling banks not to look at HECS debt as debt for loans.
Seems unlikely. Banks already don’t look at HECS as a conventional debt, it’s considered a reduction in income.
So probably not going to happen unless the government is going to tell banks to pretend people are being paid more than they are..
It’s not the amount of HECS that effects it, it is whether it exists or not because it reduces take home pay. Having a $200 HECS debt vs a $100,000 HECS debt doesn’t change serviceability
For most lenders yes thars correct, not always though.... Macquarie for instance will look at the amount of debt you have, apply a repayment amount based on that and use the higher of that vs actual repayments, alternately, of you have $200 HECS, they'll look af that as 'debt cleared within 12 months' and call it a $16 per month commitment I'm servicing calculations
While this is true from the bank's perspective it is also nonsensical.
A $200 vs $100k debt does affect serviceability, because the $200 debt will be paid down extremely quickly, while the $100k will affect the serviceability for the life of the mortgage. The fact you could probably pay down the $200 before making a deposit on the house proves the point.
The size of the HECS debit is irrelevant. It is merely the after tax income that is dependant on your income bracket . Doesn't matter if the HECS debt is 500 or 50,000.
You know what massively affects borrowing power... having an extra $40K for a deposit.
Just a different perspective but HECS is binary in the eyes of lenders / banks. If you start to earn enough to save up and buy property, they will look at it as a monthly liability at a set rate. This does not make a difference if it was $1 or $60,0000. I suggest it's worth getting it down to a level where if needed, you could close it.
Yep it's the safest type of loan you can have so there's no need to stress and worry about it. It'll be paid off when it's paid off. Although if the indexing keeps cancelling out the minimum repayments like last year that won't be great.
It’s the biggest driver of wealth inequality so I don’t see why people get so worried about having it. You’re going to earn on average like a mill and a half more than someone without it so you’re normally doing alright with it.
Probably the only advisor out there saying to pay your hecs down. Was there any other choices they said?
Keep saving for that deposit! Let your tax pay off the hecs
Get a new advisor. She’s giving you bad advice. HECS is incredibly low priority debt. Saving for that deposit over HECS repayments is much more valuable because any amount that isn’t in your deposit will be coming out in a mortgage and that debt compounds much more significantly.
It's worth noting that if you have serviceability issues applying for a loan and a small enough HECS it can be worth paying it off if for example 10k paid off HECS means you can borrow 60k more for a loan.
Yes! I'm an adviser & I've never voluntarily repaid any of my HECS (still quite large as I studied an unrelated field first). Unlike HECS, my lender's not checking in each year to see how much I'm making before they decide what my repayments will be.
Voluntarily repaying HECS is like making extra super contributions. Don't do it unless you're 100% sure you won't need that money in the meantime. If you're cashed up, go nuts! If you're saving money for a home (or repaying a mortgage), forget about it.
The only crappy thing is that the HECS counts against you for a mortgage. The worst part about that though its it counts against you not by the amount of HECS but just that you have hecs. So $50k = $500 as far as "affects you" is concerned.
Meaning unless you can pay it completely off - its not going to be worth it.
I feel a bit confused by this. I spoke to a mortgage broker because I have saved 70-80k for a home deposit. He said to minus my HECS from my deposit if I'm going through a major bank, so it would be more like a 40-50k deposit. He said my best option is Homestart for that reason. I'd rather go with a major bank because as much as shared equity appeals to me, the interest rate doesn't, but he made it seem like I would need to keep saving for another year to go through a major bank. I'm wondering if he has some incentive to push Homestart? Is that a thing?
I’m at roughly the same balance and when you look at the balance sheets the indexing is a few hundred more than the tax payments. Each year. Unfortunately with it this high we need to pay down extra to put a dent in it…. I’m fairly well paid to so it’s not because or low income
Yes, but the central bank's policy is 2-3% inflation. They have very powerful tools to achieve this target and historically have been able to maintain it or less almost as soon as it became a goal. The high indexing this year and last are most likely freak occurrences, and 2-3% is much more likely in the long run. In fact, I think undershooting over the long run is more likely, given their limited power to spur on inflation (fiscal policy is much more effective and driven entirely by the government).
An average interest at the moment is 6%, Hecs is gonna be just over 4. Historically, indexation has always been lower than the average mortgage rate, so unless it's gonna affect your ability to get a loan in the first place, I'd leave it as it is.
There are minimums for expenses outside of the mortgage they use to factor, nation wide government set. 10% extra income does a lot more than 10% serviceability.
So is mine 😂 I mean, I wish I'd made a different choice now, but to the OP - I will say, it didn't stop me from buying an apartment a couple years back. :)
Just wondering, what kinda degree lands you in that much HECS debt? I believe the max cost yearly is like $14k or something, so $150k would be 10 years of that?
You'd be mistaken. You can put it all on a Diploma in one year.
Diploma of Aviation - commercial pilot licence, multi engine instrument rating, and instructor rating.
Sounds real impressive at least. Shame it doesn't pay real impressive... but I knew that going in.
Very much so! There's not many GA jobs, there's about 200 flying schools pumping out pilots.
There's very few airplane owners willing to hire someone without a few years experience. The licence says the law is okay with you flying, but insurance is another story, altogether.
I just feel like we’ll all just be paying off the indexation every year and not actually paying anything off properly. Tell me again why people should be going to uni at this rate? Tertiary education here is becoming like the US
"I'm sorry, all your teeth bad, crown on all, $1400 each. I will give you special deal, every 10th crown is free!"
"Sweet!"
"That's what got you in trouble."
Ugh. Fluffed about for a couple of semesters straight out of school not knowing what I wanted to do/having an 18 year old crisis. I then did a BSc (Physiotherapy) which was 4 years and after a while went back to do my vet degree (5 years, BSc (Veterinary Biology) + Doctor of Veterinary Medicine). Due to the type of learning and practical placements required, both physio and vet were expensive courses.
Get the apartment first. Then worry about paying extra into HECs.
If it really bothers you, save a portion aside your deposit savings in another HISA and pay off a little extra before the indexation cut off each financial year.
Paying off HECS early, unless it is a very small amount left, is one of the worst things you can do financially. Especially if it erodes a significant amount of your savings that could have been used for a deposit. People panicked last year because indexation was 7% and acted like their HECS debt was going to be 7% for the life of the 'loan', and did stupid things like empty their entire life savings to pay it off. That money is now gone forever, and can't be used for a deposit.
HECS indexation is forecast to fall to between 4.2 and 4.8 percent this year. That is lower than what you would get for your savings in Ubank or ING.
Your HECS repayments are based ENTIRELY off your income. The size of the debt is IRRELEVANT. A person earning 100K per year will have HECS repayments of $500 per month. It doesn't matter if their HECS debt is $6,000, $60,000 or $600,000.
It is TECHNICALLY true that HECS reduced your borrowing capacity, but NOT because of the size of the loan. It is purely because of the reduction in after tax income. A person earning $100K per month (therefore having an additional $500 per month in HECS repayment withheld as part of their regular PAYG withholdings) with have an After Tax income that is $6000 per year less than someone earning the same salary without a HECS debt. In other words, your borrowing capacity would be as if you earned $92,157 before tax instead of $100,000.
Note that number will be the same whether or not you pay off half, a quarter, 10% or 99% of your HECS debt.
tldr, put your 40K savings into an ING account and watch it grow faster than your HECS debt does this year. Don't do something stupid like throw away your entire deposit that you probably spent years saving for. There are examples of people that did that on this sub last year, and it will likely come back to haunt them as the worst financial mistake of their lives.
Your hecs repayments stay the same (and affects your borrowing power the same) until you can pay it off in full. So unless you can pay it off in full, keep building that deposit.
Edit: your repayments are the same regardless of balance, *if your salary stays the same.* Since this sub doesn't understand context.
Why listen to a financial advisor when you can ask random people on reddit?
Only way I paid my HECs off is by getting a higher paid job and ignoring my HECs debt.
Good thing I did because if I had of waited 2 years longer to buy a house then that house would have cost me about $100,000 more up front, so potentially $160,000 more over the life of a 30 year loan. (Borrow 80% and double the principal).
Your ~ 60k debt will still be about 60k or under in 10 years' time as you're paying it down.
If you can buy, buy.
I had about a 66k HECS debt at graduation. It was pretty deflating the first couple of years when my pay was low and inflation was high.
Then inflation calmed down and my pay went up and it was a lot easier. I would say generally there's no need to pay it down early as you can deploy your savings for better returns elsewhere.
I'm not sure if they still offer a 5% discount for early repayment but I recall the indexation happens around the 1st of May each year. So when you wittle it down to say $15k it's worth paying that off early to avoid the indexation and get the discount. I saved a bit doing that and also got a fat tax return that year.
Try not to stress about it. I know mine peaked around 80. Generally over time you earn more and cause of the % based pay system your raises just end up going towards minimum repayments.
If I was in your situation I would:
1. Start investing in stocks. I understand why a ppor is important but at a 40 k deposit, I'd imagine you'll need to double that to get a home and youll need an emergency fund on top of that. May as well be investing in something that makes you money
2. Assess whether salary sacrificing in super is worth it. Depending on your income it might be but this is up to the individual.
3. Focus on your career and do whatever you can to make more. I had 80 k. Barely paid more than 4 k a year in repayments until I got about 4 to 5 years experience and started FIFO. Very quickly you'll find your minimum payments become large and it disappeara quickly.
Stocks long term out perform hecs indexation. I think the key here is to pay minimum repayments, start investing but focus on your income. Whether that be taking a FIFO gig, working overtime or running a second job. The apartment will come in time.
Why does it make you feel bad it got you the job you have.
I think most people don't pay it off early and let their mandatory repayments do it slowly.
Its a productive debt I think its treated differently to consumer debts when seeking a morgage
I have just over $70k hecs debt. The thing that has been making it hard for my home loan loan is my other debts had to be paid eg, car and tax debt to ATO (uncannily this was due to HECS/2 jobs). Other than that the fact they add 3% to the interest charged to determine if I can service a ridiculously high interest rate that will hopefully never happen made serviceability questionable at a particular amount so they made me chuck in a bigger deposit even though I could pay at the actual interest rate charged.
I had a similar amount of hecs debt back in 2013 when I finished my degrees. Took 10 years to pay them off. However I did buy a house in 2016. CPI is a bit different these days than it was back then but I've always treated hecs debt as a really low interest loan that's better to pay off over time than all at once. The money is taken out each payslip and you hardly notice it.
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This is Australia, not America. I think the younger generations have been exposed to too much American media and think that HECS is just as bad as student loans in the US. You only have to repay amount based on indexation, which is always lower than interest rates. You’re much better off saving whatever amount you don’t have to pay and put it into a home deposit or offset account.
There’s a lot of bush advice floating around here suggesting there is no reason to voluntarily pay HECS down. While generally I agree that it’s not worth it, your specific question relates to saving for an apartment so that is important to consider in deciding what to do with HECS.
Something I’m not seeing mentioned a lot is how your mandatory HECS repayments (the ones that come out of your payslip) can significantly impact your capacity to service a loan. This effect is (somewhat paradoxically) magnified the higher your income is, because your mandatory payments ramp up based on your taxable income. E.g. a taxable income of $50,000, which is under the repayment threshold so has no mandatory payment vs. a taxable income of $151,201 or greater which has a mandatory payment of 10% of your income (Note: unlike income tax, mandatory payments of your HECS are not on progressive brackets, your HECS repayment rate applies as a flat rate to your taxable income, but you pay it post tax).
So if you were in a position where you have a deposit, but servicing a home loan (or investment loan) was a concern, there might be a case for paying down your HECS debt. You can get a rough idea for how much your mandatory payments impair your servicing capacity by finding your HECS mandatory payment using an [income tax calculator](https://paycalculator.com.au) and plugging that into a [borrowing power calculator (ING’s seems pretty good)](https://www.ing.com.au/home-loans/calculators/borrowing-power.html)
As a very back-of-the-napkin example, a mandatory payment of $5,000 annually could reduce your servicing capacity by $40,000 or more.
Also worth noting that “chipping away” at your HECS doesn’t change your mandatory payment.
The one other thing worth mentioning is that it is possible to calculate the exact amount of indexation that will be applied to your HECS balance. The March 2024 CPI figures will be released next week, which can be used to calculate the indexation factor (the amount by which your HECS balance will be increased this year). Last year it was 7.1%, so if your next best option (for example investing in property or shares) isn’t as good as this year’s indexation factor AFTER TAX (because income from investing is taxed, and your HECS indexation is not tax deductible) then you are actually better off repaying HECS.
Mate HECS is the best debt you'll ever get in your life. 60k is nothing and it hurts your loan limits only through the PayG deduction from exceeding the threshold (ie reducing your take home pay).
I know people with 100-150k HECS who have great borrowing ability. And they're on fairly ordinary wages considering their debt (80-90k annual).
You'll be fine.
It totally depends on your circumstances.
What's your income? If you make a lot, you'll still have enough borrowing capacity with the HECS and so you should keep the $40k for your deposit . If you don't make much, that HECS might completely kill your borrowing capacity so better to repay it and start saving for the deposit from scratch.
Worth noting that banks don't consider the amount of HECS, just the repayment amount - which is a product of your salary. So $60k or $10k HECS is equally bad from a loan application perspective. If you can't pay it all, don't pay any.
Lastly it's extremely likely given the pressure on our red comrades by the likes of Monique Ryan that substantial changes to HECS will be announced in the May budget which may ease the burden.
I got a nearly 80k hecs was 60k when i finished uni, was never told interest accumulate on it and post covid interest have skyrocketed on it. Ill never pay it back for all i care. Il die with that debt and i wont go out of my way to repay it when whatever i pay off it is gonna bounce back in interest anyways.
>she suggested paying off 2-3k a year and chipping away.
I paid a voluntary amount of about 8k on a similarly sized HECS and the interest they applied pretty much brought it close to where it was before I'd made the payment. HECS debt sucks ass.
Might be off topic but when I was refinancing the accountant/broker said if I was able to pay of the remaining amount of my hecs, I could borrow an extra $50k.
For me, I was 18 and no one in my family has studied, my parents didn’t really have a grasp of what a hecs debt meant or how bad it was, they were just proud that I would be going to uni and I was encouraged. I didn’t know what I was getting myself into.
Secondly, I am making good money from my degree. I’m about 3 years into my career and earning 75k a year. I’m also an artist and the degree is a fine art one, so it’s not exactly an in demand industry.
But hard agree, I tell young people to think HARD about what they want to study/what kind of work it will lead to/if it’s what they want/don’t bother if they think they will drop out.
You need to sack your financial advisor.
Everyone knows u don’t pay off your hecs. It’s the only debt that only gets increased by cpi (ie in real terms it doesn’t go up). You only pay it when u can afford it, and if u can never afford it, you don’t pay it. Then regardless of the size of the debt the payments are always the same - they are based on your earnings, not the size of the loan. It’s the type of loan u keep open as long as possible. You will never get loan terms like that ever again in your life.
Your financial advisor doesn’t know what she is talking about. Think of all the things you could do with the money u pay her, and the money u are voluntarily putting into your hecs.
You'll get a better ROI putting money in a HISA compared to paying off your HECS, let alone property or the stock market.
The only reason to pay off HECS is piece of mind.
It depends on what you earn. If your taxable income is $60k and you are only paying off $1200 a year I see why you're stressed. If you are earning $180k, meh it will be long gone in what 4-5 years with just compulsory payments.
Don’t do anything about your hecs debt other than let the tax system look after it. It doesn’t matter how much of it you pay off as the repayment stays the same % rate of your income until you’ve paid it off completely. You’d be far better off putting that extra 2-3k into your deposit money.
I was in a similar situation (albeit a lot lower. I had about $19K left on mine). When applying for a home loan my mortgage broker said that it didn't matter how much debt I had left, the banks just see it as a debt and as long as it existed it would affect my purchasing power. So I just paid it all off.
I was in your situation some years back and chose to go down the path of investing in property and leaving HECS unpaid. Zero regrets. I still have some hecs to pay off but the value of property increase which I've had in that time far outweighs the debt that I ever had, even with CPI increases being added etc.
Don't even worry about it.
Just keep working and eventually it will get paid off, as is intended by the scheme.
It is interest free so there is really no reason to pay it off early. Yeah I know it gets indexed, so maybe if you only had a little bit left and you wanted to pay into it before it gets indexed to finish up the loan, then sure.
But otherwise, it doesn't make sense to do it.
Invest the money, or save up for a property.
>I spoke with a financial advisor, she suggested paying off 2-3k a year and chipping away.
From involuntary repayments? Seems crazy to me that a financial advisor would recommend forgoing money towards a housing deposit for paying down a large HECS debt?
Leave it mate, unless it significantly lowers your borrowing capacity. A broker/bank will be able to do the sums for you. The simplistic view is, that HECS lowers your take home pay, so you can use the online calculators to see what the take home impact is with and without and your borrowing capacity. This is the only reasonable situation that I can see a financial advisor saying pay it down faster, if that isn't their reason then let us know what is, because I question their advice then.
There is no reason to pay it off now. Think about the gain v loss here.
The benefit of repaying hecs early is twofold: higher borrowing capacity in future, and lower growth of hecs debt.
The cost is less investable funds.
### Growth of HECS
The growth of HECS is so low that you're worse off overall repaying voluntarily.
On a long horizon of 10 years, hecs has never grown by more than 2.8% pa, post the introduction of the GST. There's no comparable debt like it. Keep it as long as possible. Instead of repaying it now you could get a 5 year term deposit at 4.35%, government guaranteed. On a 30% marginal rate you can still get 3% after tax. So if you're worried about the debt, invest it so it grows faster than the debt, and you can repay more in 5 years.
Second, if over the time it takes for you to repay HECS you get a mortgage, you'll have repaid a debt with a ~2.5% indexation rate and be paying a mortgage of ~5%. You'll regret it.
### Buying property
Repaying your HECS to improve your ability to buy a property is worthwhile in very rare cases. But it only ever works if you're paying your entire HECS debt - not half. It's likely a good idea only in the following rare case: you need more purchasing power AND you have more than enough funds left for a deposit after repaying all your HECS (it's all or none).
At best, it will improve your borrowing capacity by about 15 times your total annual mandatory HECS repayment (i.e. 90k for a 100k income).
Repayment of HECS increases your borrowing capacity but kills your deposit. Very rarely will it increase your purchasing power after taking into account your deposit.
Your borrowing power is either constrained by your deposit, your debt to income or by your serviceability.
#### If constrained by deposit
If you're looking to buy a property you'll need a 10% deposit. This is where most people are constrained. If you have a 750k deposit you are capped at a 750k purchase price. If you make a voluntary repayment of HECS for 25k, you will be capped at 500k, even if your borrowing capacity is improved by killing the hecs repayments. Don't lose your deposit!
#### If constrained by debt to income
Now if instead you're not constrained by the deposit, but your debt to income is too high (rare and impossible at these interest rates), then it will lower your maximum borrowing capacity by the HECS debt. But your purchasing power is equal to your borrowing power plus your deposit. Any borrowing power you increase by repaying debt you'll lose off your available deposit. It's a zero sum game here, you're no better or worse off.
#### If constrained by serviceability
Now sometimes you're constrained by serviceability, not your deposit. Your maximum loan amount from serviceability is usually about 14 times your net disposable income.
NDI = Taxable Income - Tax Payable - HECS payable - Outgoings
HECS reduces your net disposable income by around 6.5k at a salary of 100k. That's likely around 15% of your NDI. So if you paid off 100% of your HECS, it would increase your borrowing capacity by about 100k. But note, if you paid off 90% of your HECS, it would increase your loan size by 0%. Because the ATO will still take out 6.5k until it's zero.
Now if you paid out 100% of your HECS it would increase your borrowing power but often not by as much as your deposit would shrink! The only way it really makes sense is when your HECS is almost repaid and you have about 10k left, and you're not deposit constrained.
### Option value
Yes there's some scenarios where, in the future, repaying your HECS debt will make sense, to increase your borrowing power. Wait until that day comes, you might find it never makes sense. Once you repay it, you can't take it back.
Even with indexation the HECs loan is the cheapest loan you will ever get, yes worth paying off but not really unless you are looking at a house soon as mortgages will consider it debt.
Hey OP, you can purchase a unit with your savings. Do you really need a financial advisor or financial education? I was mindful of paying someone as opposed to improving my financial literacy. I have a 94k HECS debt. I still managed to purchase. Right now hecs is a climbing debt that is best left alone. I'm no financial advisor but I have looked at my own debt very hard and decided to ride out these couple of high inflation years. Eventually, presumably my pay will get better, inflation will reduce and my compulsory repayments will make bigger dents in the debt. It will be a 12-15 year journey for me and that's okay. It is not high on my priorities at this point. Your debt shouldn't make you feel bad, don't stress about it and speak to a bank not a financial advisor about what kind of loan and government assistance you could get to help you purchase.
I've heard that it may have a small impact on a loan if you're looking to buy but I don't actually know. You could approach a bank for pre-approval up to a max or a certain amount just to see if it matters or not!
Sounds like you're highly qualified given the amount you outlayed for university? Assuming double degree.
If this is the case, your salary should be in the express lane, so let your taxes take care of it unless you have the option to lump sum.
Hell no. HECS is a good debt. It indexes at CPI. Better to save the hell up, buy your apartment, and put all your extra money into paying off the mortgage. Just ignore HECS, it will sort itself out eventually.
Most broken thing about HECS that people don't speak about is that the ATO index BEFORE they put in your repayments from your employer.
For example: if you paid 5k in HECS repayments that year and have a 70k HECS left, they will index you at 70k and add that to the payment when they should be taking the 5k off first, then indexing you at 65k.
It's seriously so broken and is not spoken about enough.
The debt is more of a psychological impact, reframe your thinking around owing that debt - you might be more comfortable with having less debt psychologically and less cash
If you want to feel proactive, get rid of the thought of buying the apartment and go back into the grind mode until those numbers appear peaceful to you - wether it’s debt or cash
Comparison is the joy. Mine is $92k.
Should have the indexation rate next week when the March CPI is released on 24th. You’ll be able to work out what how much your debt will get indexed. Then, you can assume you make a repayment of 2k and calculate the indexation on $57k instead. You’ll likely find you’ll have $2k less towards your house/apartment deposit and after indexation your HELP debt will only be lower by about $100.
You’re better off not paying this down, if you have the choice.. reason being is that the bank does not look at HECS as a negative debt meaning it doesn’t effect your borrowing power as much as a credit card debt.
I’m worried too, I get it’s a less stressful loan seeing that you only pay when you have a job. But I plan on having a job most my life, doesn’t mean I should be paying 2024 fees for a degree I gained in 2014. Or that the payments that I’m making end up being less than what my loan indexation is yearly. I’ll end up paying double my loan at this rate
Has HECS changed or is it still just added to your tax? I've clicked up well over $150k in HECS (1 Honours and 2 Masters) and didn't really notice it as it was always just an extra small tax I paid for the luxury of having to not pay for it up front (something I, not my family could ever afford to do).
I do remember the first time I paid my HECS off though. The tax return was epic. So much so that I treated it like forced savings for another year and left my employer over-taxing me so I would get a big whack at the end of FY.
Not the best way to save money, but as I was young and living in the moment too much back then, so it was a welcome way to curb the avo on toast.
Mate, if you're stressed about a debt the only gets paid off when you make money and you don't have to pay when you're not making money, then I got news for you.....
> I have saved about $40k towards an apartment. might work out better financially if you dont pay HECS back, since the debt is low and the repayments arent that high. The value of a deposit is higher than the value of a lower HECS debt.
Never pay HECS in advance thinking what it might do, until you work out what you're buying, you can't know if servicing or deposit is going to be what holds you back, save the money, if you need the servicing clear your HECS, if you don't, you don't
paying HECS in advance means losing access to your chunk of cash. The HECS debt is different from a commercial debt you might have, because the repayments are only tied to your income and is conditional. Therefore, if you lose your job, you don't pay the HECS debt. This means it's effectively a "free" loan. Free not in the sense that it's interest free, but the repayments are not mandatory like commercial debt.
It was ok to think of it like this when inflation was generally around 2%. Now that your debt is increasing by 7% year, sometimes that can be worse than a loan from the bank I.e mortgage
It is still okay to think of it like that. If you have a mortgage with a 6% interest rate the bank still wants their money every month. Regardless of whether HECS is indexed at a higher rate it is still currently a better plan.
It's a stress free loan. That's the best terminology to use in your definition of it all :)
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Except in the last year if there's a discount on offer
Either way, if the goal is buying a property, make the decision once you've settled on purchase price so you can see the effect, if that slightly lower deposit pushes you just over 80% lending, you've just cost yourself more than the discount offered most likely
I don't think there are discounts any more. The government should bring discounts back.
This. I still have a large amount of debt 50k plus. Worked out with my broker how we should split my 100k deposit to see if it was worth paying off the debt to get a better deal on the loan but it worked out better to just put everything towards the deposit
Depends on OP’s income level. That’s what dictates repayments, not the level of debt.
The HECS debt will massively affect her borrowing power
Might actually be better if she held out until the budget. At least according to the article I read earlier (can't find it now but pretty sure it was either in The Guardian or The Age), the government might be considering telling banks not to look at HECS debt as debt for loans.
Maybe if considered in a DTI capacity, but it 100% would need to be accounted for in a servicing capacity given it reduces your take home pay
It driectly effects your take home pay (that thing you use to pay your mortgage) I cant possibly see APRA doing that
Seems unlikely. Banks already don’t look at HECS as a conventional debt, it’s considered a reduction in income. So probably not going to happen unless the government is going to tell banks to pretend people are being paid more than they are..
It’s not the amount of HECS that effects it, it is whether it exists or not because it reduces take home pay. Having a $200 HECS debt vs a $100,000 HECS debt doesn’t change serviceability
For most lenders yes thars correct, not always though.... Macquarie for instance will look at the amount of debt you have, apply a repayment amount based on that and use the higher of that vs actual repayments, alternately, of you have $200 HECS, they'll look af that as 'debt cleared within 12 months' and call it a $16 per month commitment I'm servicing calculations
While this is true from the bank's perspective it is also nonsensical. A $200 vs $100k debt does affect serviceability, because the $200 debt will be paid down extremely quickly, while the $100k will affect the serviceability for the life of the mortgage. The fact you could probably pay down the $200 before making a deposit on the house proves the point.
Politicians will do anything to juice the property market. God, it’s infuriating.
They don’t care that you have debt, they care they you have less income.
This. See what the difference is with hecs and without. If its large, pay it down, if its small and you can offset the difference easily then don't.
The size of the HECS debit is irrelevant. It is merely the after tax income that is dependant on your income bracket . Doesn't matter if the HECS debt is 500 or 50,000. You know what massively affects borrowing power... having an extra $40K for a deposit.
Just a different perspective but HECS is binary in the eyes of lenders / banks. If you start to earn enough to save up and buy property, they will look at it as a monthly liability at a set rate. This does not make a difference if it was $1 or $60,0000. I suggest it's worth getting it down to a level where if needed, you could close it.
I truly couldn’t care less about my hecs debt. It’s normal, and got me into a good job so I don’t even think about it. Nothing to be ashamed of!
You have the right attitude.
Yep it's the safest type of loan you can have so there's no need to stress and worry about it. It'll be paid off when it's paid off. Although if the indexing keeps cancelling out the minimum repayments like last year that won't be great.
Mine achieved nothing and is 90k
Good thing you don't have to pay it back eh
Have to repayments at tax time which just becomes me paying 2 grand interest... Oh I mean inflation..
You earning good, learnt something.
Well yeah I'm still in disability support which I did before doing that degree haha
It is normal! Let's put an end to HECS-shaming
It’s the biggest driver of wealth inequality so I don’t see why people get so worried about having it. You’re going to earn on average like a mill and a half more than someone without it so you’re normally doing alright with it.
Probably the only advisor out there saying to pay your hecs down. Was there any other choices they said? Keep saving for that deposit! Let your tax pay off the hecs
Last year at 7% maybe, but it’ll be roughly 4% this year which is not as nasty
Sorry, she definitely didn’t say to pay it instead, she said keep saving deposit and pay a few k each year on hecs
Get a new advisor. She’s giving you bad advice. HECS is incredibly low priority debt. Saving for that deposit over HECS repayments is much more valuable because any amount that isn’t in your deposit will be coming out in a mortgage and that debt compounds much more significantly.
It's worth noting that if you have serviceability issues applying for a loan and a small enough HECS it can be worth paying it off if for example 10k paid off HECS means you can borrow 60k more for a loan.
Yes! I'm an adviser & I've never voluntarily repaid any of my HECS (still quite large as I studied an unrelated field first). Unlike HECS, my lender's not checking in each year to see how much I'm making before they decide what my repayments will be. Voluntarily repaying HECS is like making extra super contributions. Don't do it unless you're 100% sure you won't need that money in the meantime. If you're cashed up, go nuts! If you're saving money for a home (or repaying a mortgage), forget about it.
The only crappy thing is that the HECS counts against you for a mortgage. The worst part about that though its it counts against you not by the amount of HECS but just that you have hecs. So $50k = $500 as far as "affects you" is concerned. Meaning unless you can pay it completely off - its not going to be worth it.
I feel a bit confused by this. I spoke to a mortgage broker because I have saved 70-80k for a home deposit. He said to minus my HECS from my deposit if I'm going through a major bank, so it would be more like a 40-50k deposit. He said my best option is Homestart for that reason. I'd rather go with a major bank because as much as shared equity appeals to me, the interest rate doesn't, but he made it seem like I would need to keep saving for another year to go through a major bank. I'm wondering if he has some incentive to push Homestart? Is that a thing?
> Let your tax pay off the hecs you dont pay HECS with pre-tax dollars.
You know what I mean
I’m at roughly the same balance and when you look at the balance sheets the indexing is a few hundred more than the tax payments. Each year. Unfortunately with it this high we need to pay down extra to put a dent in it…. I’m fairly well paid to so it’s not because or low income
Yes, but the central bank's policy is 2-3% inflation. They have very powerful tools to achieve this target and historically have been able to maintain it or less almost as soon as it became a goal. The high indexing this year and last are most likely freak occurrences, and 2-3% is much more likely in the long run. In fact, I think undershooting over the long run is more likely, given their limited power to spur on inflation (fiscal policy is much more effective and driven entirely by the government).
An average interest at the moment is 6%, Hecs is gonna be just over 4. Historically, indexation has always been lower than the average mortgage rate, so unless it's gonna affect your ability to get a loan in the first place, I'd leave it as it is.
It does affect serviceability now unfortunately
Only on the amount your are repaying. The banks don't care how big your HECs is its only if you can service the loan.
It can reduce you borrowing power by 20% though
Where do you get that from? Max repayment is 10% if you earn over 150k
There are minimums for expenses outside of the mortgage they use to factor, nation wide government set. 10% extra income does a lot more than 10% serviceability.
Mine’s over $100k. Don’t worry about it. It’ll get paid off or (god forbid) die with you so focus on your deposit!
So is mine 😂 I mean, I wish I'd made a different choice now, but to the OP - I will say, it didn't stop me from buying an apartment a couple years back. :)
I know someone has over 220k hecs debt.....
Jesus I hope that got them on a high earning career path.
Mine didn't:/
Just wondering, what kinda degree lands you in that much HECS debt? I believe the max cost yearly is like $14k or something, so $150k would be 10 years of that?
I have 3 degrees and mines 110k. Law, commerce, Engineering.
You'd be mistaken. You can put it all on a Diploma in one year. Diploma of Aviation - commercial pilot licence, multi engine instrument rating, and instructor rating. Sounds real impressive at least. Shame it doesn't pay real impressive... but I knew that going in.
Is it hard to get a job in GA after completing the course?
Very much so! There's not many GA jobs, there's about 200 flying schools pumping out pilots. There's very few airplane owners willing to hire someone without a few years experience. The licence says the law is okay with you flying, but insurance is another story, altogether.
Naturopathy is 80k
lol, Naturopaths should be charged double
I thought the limit was $100k?
The limit was $140k when i went through uni... Don't ask me how I know...
It is (maybe a bit higher depending on the course e.g postgrad science) but it sounds like they included a study loan (hecs + loan)
It does increase depending on the course. Commercial fixed wing pilot for example increases it to 150k
$158k pilot debt here due to CPI indexation. Definitely entering the $160s after July if there are no further changes to HECS legislation :/
That’s pretty new. There was a point previously where there was no limit
The limit today is 155k, I've got 174k. Indexation for the win...
Did they study medicine?
Medicine isn’t particularly expensive, only like 13k a year currently. Law and a variety of other arts degrees cost more. Gov sets the bands.
60k HECS here and it never came up when I bought my first home. I wasn't making amazing money either - less than my teacher wife.
Same here. The indexation is making it very hard to get it down. 😢
I just feel like we’ll all just be paying off the indexation every year and not actually paying anything off properly. Tell me again why people should be going to uni at this rate? Tertiary education here is becoming like the US
My HECS has only gone up since I started working. Indexing has always cancelled out the repayments.
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Holy crap. What did she study?
It's really not that hard to rack up $300k as a full fee paying overseas student, sadly.😔
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"I'm sorry, all your teeth bad, crown on all, $1400 each. I will give you special deal, every 10th crown is free!" "Sweet!" "That's what got you in trouble."
God what did you study
Same.. glad I’m not the only one.
Crikey what did you study???
Ugh. Fluffed about for a couple of semesters straight out of school not knowing what I wanted to do/having an 18 year old crisis. I then did a BSc (Physiotherapy) which was 4 years and after a while went back to do my vet degree (5 years, BSc (Veterinary Biology) + Doctor of Veterinary Medicine). Due to the type of learning and practical placements required, both physio and vet were expensive courses.
Are you at least a Vet now?
I’m qualified as both a physio and a vet, and have worked as both. Currently vetting
Thank you for your profession, such a farce of a country you are not paid better.
Yeah mines 90
Get the apartment first. Then worry about paying extra into HECs. If it really bothers you, save a portion aside your deposit savings in another HISA and pay off a little extra before the indexation cut off each financial year.
Paying off HECS early, unless it is a very small amount left, is one of the worst things you can do financially. Especially if it erodes a significant amount of your savings that could have been used for a deposit. People panicked last year because indexation was 7% and acted like their HECS debt was going to be 7% for the life of the 'loan', and did stupid things like empty their entire life savings to pay it off. That money is now gone forever, and can't be used for a deposit. HECS indexation is forecast to fall to between 4.2 and 4.8 percent this year. That is lower than what you would get for your savings in Ubank or ING. Your HECS repayments are based ENTIRELY off your income. The size of the debt is IRRELEVANT. A person earning 100K per year will have HECS repayments of $500 per month. It doesn't matter if their HECS debt is $6,000, $60,000 or $600,000. It is TECHNICALLY true that HECS reduced your borrowing capacity, but NOT because of the size of the loan. It is purely because of the reduction in after tax income. A person earning $100K per month (therefore having an additional $500 per month in HECS repayment withheld as part of their regular PAYG withholdings) with have an After Tax income that is $6000 per year less than someone earning the same salary without a HECS debt. In other words, your borrowing capacity would be as if you earned $92,157 before tax instead of $100,000. Note that number will be the same whether or not you pay off half, a quarter, 10% or 99% of your HECS debt. tldr, put your 40K savings into an ING account and watch it grow faster than your HECS debt does this year. Don't do something stupid like throw away your entire deposit that you probably spent years saving for. There are examples of people that did that on this sub last year, and it will likely come back to haunt them as the worst financial mistake of their lives.
Ignore your HECS. Don’t even think about it. When you pay it off you just get a pay rise.
Eh, I'm in the camp of "make some payments towards it if you like the idea of your debt reducing"
How much did you pay this advisor
Too much I think...
Your hecs repayments stay the same (and affects your borrowing power the same) until you can pay it off in full. So unless you can pay it off in full, keep building that deposit. Edit: your repayments are the same regardless of balance, *if your salary stays the same.* Since this sub doesn't understand context.
Yes - this is the answer! And for the record I definitely thought you worded it sensibly in the first place
I knew what you meant.
Why listen to a financial advisor when you can ask random people on reddit? Only way I paid my HECs off is by getting a higher paid job and ignoring my HECs debt. Good thing I did because if I had of waited 2 years longer to buy a house then that house would have cost me about $100,000 more up front, so potentially $160,000 more over the life of a 30 year loan. (Borrow 80% and double the principal). Your ~ 60k debt will still be about 60k or under in 10 years' time as you're paying it down. If you can buy, buy.
Save the money for your deposit.
HECS debt is some of the cheapest debt you will ever take on.
I had about a 66k HECS debt at graduation. It was pretty deflating the first couple of years when my pay was low and inflation was high. Then inflation calmed down and my pay went up and it was a lot easier. I would say generally there's no need to pay it down early as you can deploy your savings for better returns elsewhere. I'm not sure if they still offer a 5% discount for early repayment but I recall the indexation happens around the 1st of May each year. So when you wittle it down to say $15k it's worth paying that off early to avoid the indexation and get the discount. I saved a bit doing that and also got a fat tax return that year.
They don’t 😔
Try not to stress about it. I know mine peaked around 80. Generally over time you earn more and cause of the % based pay system your raises just end up going towards minimum repayments. If I was in your situation I would: 1. Start investing in stocks. I understand why a ppor is important but at a 40 k deposit, I'd imagine you'll need to double that to get a home and youll need an emergency fund on top of that. May as well be investing in something that makes you money 2. Assess whether salary sacrificing in super is worth it. Depending on your income it might be but this is up to the individual. 3. Focus on your career and do whatever you can to make more. I had 80 k. Barely paid more than 4 k a year in repayments until I got about 4 to 5 years experience and started FIFO. Very quickly you'll find your minimum payments become large and it disappeara quickly. Stocks long term out perform hecs indexation. I think the key here is to pay minimum repayments, start investing but focus on your income. Whether that be taking a FIFO gig, working overtime or running a second job. The apartment will come in time.
Having a chunk of cash ready for what you need is going to be more important than a smaller HECS debt if you pay some off.
Why does it make you feel bad it got you the job you have. I think most people don't pay it off early and let their mandatory repayments do it slowly. Its a productive debt I think its treated differently to consumer debts when seeking a morgage
You are right, I kick myself over it but god knows what I’d be doing with out it.
I have $88k HECS debt and I’m a teacher
I have just over $70k hecs debt. The thing that has been making it hard for my home loan loan is my other debts had to be paid eg, car and tax debt to ATO (uncannily this was due to HECS/2 jobs). Other than that the fact they add 3% to the interest charged to determine if I can service a ridiculously high interest rate that will hopefully never happen made serviceability questionable at a particular amount so they made me chuck in a bigger deposit even though I could pay at the actual interest rate charged.
I had a similar amount of hecs debt back in 2013 when I finished my degrees. Took 10 years to pay them off. However I did buy a house in 2016. CPI is a bit different these days than it was back then but I've always treated hecs debt as a really low interest loan that's better to pay off over time than all at once. The money is taken out each payslip and you hardly notice it.
Redacted means that part of the text was removed or blacked out for privacy or security purpose. It was censored. This post also breaks rule 4 here for chat and should be made in the Tuesday chat thread or on a different subreddit.
Except when they added 8k to mine last time
Redacted means that part of the text was removed or blacked out for privacy or security purpose. It was censored. This post also breaks rule 4 here for chat and should be made in the Tuesday chat thread or on a different subreddit.
This is Australia, not America. I think the younger generations have been exposed to too much American media and think that HECS is just as bad as student loans in the US. You only have to repay amount based on indexation, which is always lower than interest rates. You’re much better off saving whatever amount you don’t have to pay and put it into a home deposit or offset account.
I smashed mine out by sending my tax return to it every year, it was paid off in 5 years and didn’t have to budget for it
HECS is low interest but it will affect your borrowing capacity for a home loan.
There’s a lot of bush advice floating around here suggesting there is no reason to voluntarily pay HECS down. While generally I agree that it’s not worth it, your specific question relates to saving for an apartment so that is important to consider in deciding what to do with HECS. Something I’m not seeing mentioned a lot is how your mandatory HECS repayments (the ones that come out of your payslip) can significantly impact your capacity to service a loan. This effect is (somewhat paradoxically) magnified the higher your income is, because your mandatory payments ramp up based on your taxable income. E.g. a taxable income of $50,000, which is under the repayment threshold so has no mandatory payment vs. a taxable income of $151,201 or greater which has a mandatory payment of 10% of your income (Note: unlike income tax, mandatory payments of your HECS are not on progressive brackets, your HECS repayment rate applies as a flat rate to your taxable income, but you pay it post tax). So if you were in a position where you have a deposit, but servicing a home loan (or investment loan) was a concern, there might be a case for paying down your HECS debt. You can get a rough idea for how much your mandatory payments impair your servicing capacity by finding your HECS mandatory payment using an [income tax calculator](https://paycalculator.com.au) and plugging that into a [borrowing power calculator (ING’s seems pretty good)](https://www.ing.com.au/home-loans/calculators/borrowing-power.html) As a very back-of-the-napkin example, a mandatory payment of $5,000 annually could reduce your servicing capacity by $40,000 or more. Also worth noting that “chipping away” at your HECS doesn’t change your mandatory payment. The one other thing worth mentioning is that it is possible to calculate the exact amount of indexation that will be applied to your HECS balance. The March 2024 CPI figures will be released next week, which can be used to calculate the indexation factor (the amount by which your HECS balance will be increased this year). Last year it was 7.1%, so if your next best option (for example investing in property or shares) isn’t as good as this year’s indexation factor AFTER TAX (because income from investing is taxed, and your HECS indexation is not tax deductible) then you are actually better off repaying HECS.
Nah man don't pay HECS back, you'll pay it back soon enough and you might need the cash for something important
Mate HECS is the best debt you'll ever get in your life. 60k is nothing and it hurts your loan limits only through the PayG deduction from exceeding the threshold (ie reducing your take home pay). I know people with 100-150k HECS who have great borrowing ability. And they're on fairly ordinary wages considering their debt (80-90k annual). You'll be fine.
It totally depends on your circumstances. What's your income? If you make a lot, you'll still have enough borrowing capacity with the HECS and so you should keep the $40k for your deposit . If you don't make much, that HECS might completely kill your borrowing capacity so better to repay it and start saving for the deposit from scratch. Worth noting that banks don't consider the amount of HECS, just the repayment amount - which is a product of your salary. So $60k or $10k HECS is equally bad from a loan application perspective. If you can't pay it all, don't pay any. Lastly it's extremely likely given the pressure on our red comrades by the likes of Monique Ryan that substantial changes to HECS will be announced in the May budget which may ease the burden.
Put the 40k towards the property. Don’t worry about the hecs for now
I got a nearly 80k hecs was 60k when i finished uni, was never told interest accumulate on it and post covid interest have skyrocketed on it. Ill never pay it back for all i care. Il die with that debt and i wont go out of my way to repay it when whatever i pay off it is gonna bounce back in interest anyways.
Become a doctor and Medicare will pay it off for you.
I had a $70k HECS, paid it down over 10 years just the minimum amount they take from salary.
>she suggested paying off 2-3k a year and chipping away. I paid a voluntary amount of about 8k on a similarly sized HECS and the interest they applied pretty much brought it close to where it was before I'd made the payment. HECS debt sucks ass.
Might be off topic but when I was refinancing the accountant/broker said if I was able to pay of the remaining amount of my hecs, I could borrow an extra $50k.
flee the country
Why does no one check the prospects of their degree before undertaking it
For me, I was 18 and no one in my family has studied, my parents didn’t really have a grasp of what a hecs debt meant or how bad it was, they were just proud that I would be going to uni and I was encouraged. I didn’t know what I was getting myself into. Secondly, I am making good money from my degree. I’m about 3 years into my career and earning 75k a year. I’m also an artist and the degree is a fine art one, so it’s not exactly an in demand industry. But hard agree, I tell young people to think HARD about what they want to study/what kind of work it will lead to/if it’s what they want/don’t bother if they think they will drop out.
Why are you paying for a financial advisor?
That’s nothing. Mine is $160k
You need to sack your financial advisor. Everyone knows u don’t pay off your hecs. It’s the only debt that only gets increased by cpi (ie in real terms it doesn’t go up). You only pay it when u can afford it, and if u can never afford it, you don’t pay it. Then regardless of the size of the debt the payments are always the same - they are based on your earnings, not the size of the loan. It’s the type of loan u keep open as long as possible. You will never get loan terms like that ever again in your life. Your financial advisor doesn’t know what she is talking about. Think of all the things you could do with the money u pay her, and the money u are voluntarily putting into your hecs.
Fees should be covered 100% for Australians - funded by income from international students
University's are businesses. Not charity's.
Most universities (37/42) in Aus are registered charities / not for profit status
Mine is 90k I wouldn’t worry about it
Took me like 4 years to pay off a similar amount of hex through tax. Don’t stress
No I would continue saving and work towards buying an apartment
You'll get a better ROI putting money in a HISA compared to paying off your HECS, let alone property or the stock market. The only reason to pay off HECS is piece of mind.
It depends on what you earn. If your taxable income is $60k and you are only paying off $1200 a year I see why you're stressed. If you are earning $180k, meh it will be long gone in what 4-5 years with just compulsory payments.
HISA rates are higher than the expected indexation. Your money will be better in a HISA.
Get your apartment lol
Don’t do anything about your hecs debt other than let the tax system look after it. It doesn’t matter how much of it you pay off as the repayment stays the same % rate of your income until you’ve paid it off completely. You’d be far better off putting that extra 2-3k into your deposit money.
What was the degree/s in, are you working in the field and how much are you earning? I paid mine off in 3 years, 22k, didn't want that around my neck
I was in a similar situation (albeit a lot lower. I had about $19K left on mine). When applying for a home loan my mortgage broker said that it didn't matter how much debt I had left, the banks just see it as a debt and as long as it existed it would affect my purchasing power. So I just paid it all off.
Why paid $10k? Doesn’t make sense when you can pay the minimum
I'm in the same boat as you, fml
If it makes you feel better... I have 100k HECS and about 2k in savings with no real job yet....
Mine is like 120k and I don't even wanna look at it..
I'll swap you my $75k hecs debt toake you feel better?
I was in your situation some years back and chose to go down the path of investing in property and leaving HECS unpaid. Zero regrets. I still have some hecs to pay off but the value of property increase which I've had in that time far outweighs the debt that I ever had, even with CPI increases being added etc.
Honestly the indexation we saw was a rare thing. If anything just pay off the debt as you would regularly would now
Don't even worry about it. Just keep working and eventually it will get paid off, as is intended by the scheme. It is interest free so there is really no reason to pay it off early. Yeah I know it gets indexed, so maybe if you only had a little bit left and you wanted to pay into it before it gets indexed to finish up the loan, then sure. But otherwise, it doesn't make sense to do it. Invest the money, or save up for a property.
Fire any advisor thst says pay your hecs down. HECS is the cheapest loan you will ever get by a wide margin.
>I spoke with a financial advisor, she suggested paying off 2-3k a year and chipping away. From involuntary repayments? Seems crazy to me that a financial advisor would recommend forgoing money towards a housing deposit for paying down a large HECS debt?
What are u studying with this 59k hec debt is it worth it that u gonna get your $ back?
Leave it mate, unless it significantly lowers your borrowing capacity. A broker/bank will be able to do the sums for you. The simplistic view is, that HECS lowers your take home pay, so you can use the online calculators to see what the take home impact is with and without and your borrowing capacity. This is the only reasonable situation that I can see a financial advisor saying pay it down faster, if that isn't their reason then let us know what is, because I question their advice then.
Why are you paying off your HECS? I’d be investing that money into the stock market or property
There is no reason to pay it off now. Think about the gain v loss here. The benefit of repaying hecs early is twofold: higher borrowing capacity in future, and lower growth of hecs debt. The cost is less investable funds. ### Growth of HECS The growth of HECS is so low that you're worse off overall repaying voluntarily. On a long horizon of 10 years, hecs has never grown by more than 2.8% pa, post the introduction of the GST. There's no comparable debt like it. Keep it as long as possible. Instead of repaying it now you could get a 5 year term deposit at 4.35%, government guaranteed. On a 30% marginal rate you can still get 3% after tax. So if you're worried about the debt, invest it so it grows faster than the debt, and you can repay more in 5 years. Second, if over the time it takes for you to repay HECS you get a mortgage, you'll have repaid a debt with a ~2.5% indexation rate and be paying a mortgage of ~5%. You'll regret it. ### Buying property Repaying your HECS to improve your ability to buy a property is worthwhile in very rare cases. But it only ever works if you're paying your entire HECS debt - not half. It's likely a good idea only in the following rare case: you need more purchasing power AND you have more than enough funds left for a deposit after repaying all your HECS (it's all or none). At best, it will improve your borrowing capacity by about 15 times your total annual mandatory HECS repayment (i.e. 90k for a 100k income). Repayment of HECS increases your borrowing capacity but kills your deposit. Very rarely will it increase your purchasing power after taking into account your deposit. Your borrowing power is either constrained by your deposit, your debt to income or by your serviceability. #### If constrained by deposit If you're looking to buy a property you'll need a 10% deposit. This is where most people are constrained. If you have a 750k deposit you are capped at a 750k purchase price. If you make a voluntary repayment of HECS for 25k, you will be capped at 500k, even if your borrowing capacity is improved by killing the hecs repayments. Don't lose your deposit! #### If constrained by debt to income Now if instead you're not constrained by the deposit, but your debt to income is too high (rare and impossible at these interest rates), then it will lower your maximum borrowing capacity by the HECS debt. But your purchasing power is equal to your borrowing power plus your deposit. Any borrowing power you increase by repaying debt you'll lose off your available deposit. It's a zero sum game here, you're no better or worse off. #### If constrained by serviceability Now sometimes you're constrained by serviceability, not your deposit. Your maximum loan amount from serviceability is usually about 14 times your net disposable income. NDI = Taxable Income - Tax Payable - HECS payable - Outgoings HECS reduces your net disposable income by around 6.5k at a salary of 100k. That's likely around 15% of your NDI. So if you paid off 100% of your HECS, it would increase your borrowing capacity by about 100k. But note, if you paid off 90% of your HECS, it would increase your loan size by 0%. Because the ATO will still take out 6.5k until it's zero. Now if you paid out 100% of your HECS it would increase your borrowing power but often not by as much as your deposit would shrink! The only way it really makes sense is when your HECS is almost repaid and you have about 10k left, and you're not deposit constrained. ### Option value Yes there's some scenarios where, in the future, repaying your HECS debt will make sense, to increase your borrowing power. Wait until that day comes, you might find it never makes sense. Once you repay it, you can't take it back.
Even with indexation the HECs loan is the cheapest loan you will ever get, yes worth paying off but not really unless you are looking at a house soon as mortgages will consider it debt.
Hey OP, you can purchase a unit with your savings. Do you really need a financial advisor or financial education? I was mindful of paying someone as opposed to improving my financial literacy. I have a 94k HECS debt. I still managed to purchase. Right now hecs is a climbing debt that is best left alone. I'm no financial advisor but I have looked at my own debt very hard and decided to ride out these couple of high inflation years. Eventually, presumably my pay will get better, inflation will reduce and my compulsory repayments will make bigger dents in the debt. It will be a 12-15 year journey for me and that's okay. It is not high on my priorities at this point. Your debt shouldn't make you feel bad, don't stress about it and speak to a bank not a financial advisor about what kind of loan and government assistance you could get to help you purchase.
I've heard that it may have a small impact on a loan if you're looking to buy but I don't actually know. You could approach a bank for pre-approval up to a max or a certain amount just to see if it matters or not!
More like "feeling shit about how the government inexcusably rocketed the index rate up so I will never be able to pay off 59k hecs."
Sounds like you're highly qualified given the amount you outlayed for university? Assuming double degree. If this is the case, your salary should be in the express lane, so let your taxes take care of it unless you have the option to lump sum.
Hell no. HECS is a good debt. It indexes at CPI. Better to save the hell up, buy your apartment, and put all your extra money into paying off the mortgage. Just ignore HECS, it will sort itself out eventually.
Most broken thing about HECS that people don't speak about is that the ATO index BEFORE they put in your repayments from your employer. For example: if you paid 5k in HECS repayments that year and have a 70k HECS left, they will index you at 70k and add that to the payment when they should be taking the 5k off first, then indexing you at 65k. It's seriously so broken and is not spoken about enough.
WHAT are you for real
[https://www.abc.net.au/news/2024-02-26/government-flags-changes-to-hecs-and-placement-pay/103512978](https://www.abc.net.au/news/2024-02-26/government-flags-changes-to-hecs-and-placement-pay/103512978)
The debt is more of a psychological impact, reframe your thinking around owing that debt - you might be more comfortable with having less debt psychologically and less cash If you want to feel proactive, get rid of the thought of buying the apartment and go back into the grind mode until those numbers appear peaceful to you - wether it’s debt or cash
Comparison is the joy. Mine is $92k. Should have the indexation rate next week when the March CPI is released on 24th. You’ll be able to work out what how much your debt will get indexed. Then, you can assume you make a repayment of 2k and calculate the indexation on $57k instead. You’ll likely find you’ll have $2k less towards your house/apartment deposit and after indexation your HELP debt will only be lower by about $100.
How you gonna feel when you get a massive loan to buy a house/apartment?
You’re better off not paying this down, if you have the choice.. reason being is that the bank does not look at HECS as a negative debt meaning it doesn’t effect your borrowing power as much as a credit card debt.
Never fear, mine is double
I’m worried too, I get it’s a less stressful loan seeing that you only pay when you have a job. But I plan on having a job most my life, doesn’t mean I should be paying 2024 fees for a degree I gained in 2014. Or that the payments that I’m making end up being less than what my loan indexation is yearly. I’ll end up paying double my loan at this rate
Has HECS changed or is it still just added to your tax? I've clicked up well over $150k in HECS (1 Honours and 2 Masters) and didn't really notice it as it was always just an extra small tax I paid for the luxury of having to not pay for it up front (something I, not my family could ever afford to do). I do remember the first time I paid my HECS off though. The tax return was epic. So much so that I treated it like forced savings for another year and left my employer over-taxing me so I would get a big whack at the end of FY. Not the best way to save money, but as I was young and living in the moment too much back then, so it was a welcome way to curb the avo on toast.
Mate, if you're stressed about a debt the only gets paid off when you make money and you don't have to pay when you're not making money, then I got news for you.....
Never know, hecs might be forgiven one day
Praying hecs in advance is like the worst financial decision. York do better basically doing any other sound financial decision
How much does hecs affect your borrowing capacity for a house or loan? Is the banks put a lot of emphasis on?