PSA: Your HECS Debt Is About To Get Even Larger And Here’s What You Need To Know
That doesn't necessarily mean you should be rushing to pay it off though.
If you’ve got a HECS-HELP loan, you may want to consider making a voluntary contribution before June 1 to avoid paying off a larger bill.
A HECS-HELP loan is widely regarded as the least important debt to worry about paying off, thanks to the fact that it doesn’t accrue interest in the same way as a credit card or other loan.
However, your HECS-HELP loan amount is adjusted every year on June 1 to account for inflation, which is quite literally out the wazoo right now. This means that as of June 1, your existing HECS-HELP loan will be indexed by 3.9 percent, to account for rising inflation rates. For context, this is the biggest jump we’ve had in over a decade — with the existing rate sitting at a measly 0.6 percent.
Considering the average Australian has $23,685 worth of HECS-HELP loans, this equates to an increase of approximately $1,013.72 on June 1. However, it’s important to note that the indexation rate (the thing that just went up) doesn’t impact the amount you’ll actually pay off per year as part of your compulsory repayments.
Does This Mean I Should Be Paying Off My HECS?
This doesn’t mean you should be putting yourself in to financial stress to pay your HECS debt off in full by next month, but it does mean it’s worth considering your situation before the June 1 indexation date.
If you pay off a chunk of the debt before the indexation date, you stand to save 3.9 percent, but that doesn’t necessarily mean that’s the best investment you can make.
“As a general rule, and obviously this depends on someone’s personal circumstances, it’s not usually a number one priority. Yes, HECS is going up by indexation, but it needs to be considered with regards to the opportunity cost of paying it offer faster,” Glen Hare, a financial adviser and co-founder of Fox and Hare Wealth, told Money Mag.”Given those with HECS-HELP debt are typically younger and looking for long-term investment strategies there’s a conversation to be had about whether it’s better paying off HECS, which is going up with inflation, or investing in an asset class that has historically outperformed inflation.
“A lot of my younger members are also looking to buy property, so again, there’s this balancing act between paying off HECS or buying their first home.
“The caveat to that is that choosing to put money in the stock market or a property rather than paying down HECS comes with a degree of risk that someone would need to be comfortable with it.”
What About Wiping Student Debt?
The decision to increase HECS-HELP indexation while not formally increasing the minimum wage amid rising inflation has been criticised by Greens leader Adam Bandt.
“If student debt can be automatically lifted with inflation then wages can too,” said Bandt, who is currently campaigning to wipe student debt in Australia. “The Greens want to change the law to lift the minimum wage to 60% of the median wage and to guarantee wages in female-dominated industries rise at least 0.5 percent faster than CPI to close the gender pay gap.”
However, it’s probably not worth hedging your bets on the hopes that student debt forgiveness will be introduced any time in the foreseeable future.