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· Posted on
February 21, 2024

Should I pay off my HECS-HELP loan early?

With HECS-HELP loans increasing by 3.9% from June 1, you might be wondering whether you should pay off your loan early or not.

What's the key learning?

  • Generally, experts advise against voluntarily paying off your HECS-HELP loan because HECS-HELP debts don’t accrue interest
  • However, with HECS-HELP loans increasing by 3.9% from June 1, you may want to consider making voluntary repayments
  • Paying off your HECS-HELP debt could come at the cost of other investment opportunities
  • If you’re unsure of what to do, it’s a good idea to take stock of your financial goals. 

So, you’ve probably heard the news that HECS-HELP loans will increase by 3.9% on June 1.

To read more about that, you can just head here. The gist is that HECS-HELP debts are indexed to inflation, so with inflation going up, up and away… well, ya get the picture.

But the big question now is, is it worth paying off your HECS-HELP loan early?

Unfortunately, it ain’t a straight yes or no. Generally, experts advise against voluntarily paying off your HECS-HELP loan because HECS-HELP debts don’t accrue interest (unlike that credit card or personal loan ya took out for your 2019 #Eurotrip). 

Because of that, experts generally recommend paying off the bare minimum required once you’ve hit a certain salary threshold (in the 2021-22 financial year, it’s $47,014).

On top of that, if you were to lose your job, you wouldn’t have to make HECS-HELP repayments. The same is not true for your other debts (aka, ya might wanna pay those off sooner rather than later… juuust in case).

Okay, but what about with an indexation rate of 3.9%?

Here’s the thing: with an indexation rate of 3.9%, things are… a little different.

Some experts reckon it may be worth paying off some of your HECS-HELP debt if you have the capacity to make voluntary repayments.

It’s all about the opportunity cost.

Paying off your HECS-HELP debt could come at the cost of other investment opportunities, which might earn ya a bit more than inflation (remember: over 10 years, the ASX200 has returned an average of 9.3% each year!).

If you’re unsure of what to do, it’s a good idea to take stock of your financial goals

If your goal is to have a house deposit by the end of the year, you might want to continue saving for that. But, if your goal is to be completely debt-free, then perhaps paying off your HECS-HELP is right for you.

Disclaimer: All information contained in the Flux app is for education and entertainment purposes only. It is not intended as a substitute for professional financial, legal or tax advice.

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