HECS-HELP debt is an important consideration for students in Australia who have pursued higher education. Many students wonder whether paying off their HECS debt early is beneficial. In this article, we will explore the advantages and potential drawbacks of paying off HECS debt ahead of schedule.

Understanding HECS-HELP Debt

HECS-HELP debt is designed to provide financial assistance to students. It allows students to defer payment of their tuition fees and repay the debt later based on their income. It is crucial for students to understand the terms and conditions of this debt and how it can impact their financial situation.

Benefits of Paying Off HECS Debt Early

Whilst HECS debt doesn’t accrue interest monthly, unlike a credit card or personal loan the balance does increase annually with indexation. So with a current indexation rate of 3.9%, you might be thinking of repaying your student loan early. To put this into perspective, an indexation rate of 3.9% means that a $35,000 balance would increase by $1,365. Given inflation is currently 7% and not tipped to slow down too soon post the 31st May 2023 your new indexation rate could be 7% which would mean an increase of $2450 next year on a $35,000 balance.

Paying off your HECS debts early also benefits you as below:

  1. Reducing Interest: Paying off your HECS debt early can help you save on interest charges. By making voluntary repayments, you can minimize the amount of interest accumulating over time, potentially saving you money in the long run.
  2. Financial Freedom: Clearing your HECS debt early can provide a sense of financial freedom. It eliminates the obligation of making ongoing repayments, allowing you to allocate those funds towards other financial goals, such as saving for a house or starting a business.
  3. Improved Credit Rating: Paying off your HECS debt early demonstrates responsible financial behaviour, which can positively impact your credit rating. A good credit rating can be beneficial when applying for loans or other forms of credit.
Considerations Before Paying Off HECS Debt Early
  1. Other Debts: Before focusing on early repayment of HECS debt, it’s essential to evaluate your overall financial situation. If you have other high-interest debts, such as credit card debt or personal loans, it may be more advantageous to prioritise those debts first.
  2. Opportunity Cost: Consider the opportunity cost of paying off your HECS debt early. If you have other investment opportunities that could potentially yield higher returns than the interest rate on your HECS debt, it might be wiser to allocate your funds there instead.
  3. Income Level: Evaluate your income level and repayment obligations. Depending on your income, the required repayments for your HECS debt may be relatively low, and you may not benefit significantly from paying it off early. In such cases, it might be more prudent to focus on building an emergency fund or saving for retirement.

Deciding whether to pay off your HECS debt early is a personal financial choice that requires careful consideration. While there are benefits to early repayment, it’s important to weigh those advantages against other financial priorities and obligations. If you want to discuss your personal situation prior to the 1st July this year reach out to one of the Inspired Money Team at your earliest convenience to help you make an informed decision based on your individual goals and financial situation.

Remember, this article provides general information and should not be considered personalised financial advice. If you have specific questions or concerns, it is always recommended to seek guidance from a professional financial advisor or accountant.


[1] Source: Well Kept Wallet – Oberlo

[2] Source: Clever Girl Finance

[3] Source: Consumer Financial Protection Bureau

This article was written by Director & Senior Adviser Shane MitchellTo book a session to review your goals contact Shane directly on 08 6222 7909 or book a meeting directly via his booking page.


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Inspired Money