Hey all,
With the index moving up to 3.9% should I pay my HECS debt off and be done with it.
I have the required cash sitting in a savings account and that won't need to be touched for 10years+
On the other hand I'm a stay at home dad and its going to be a very long time until I earn over $46k and potentially may never again. So maybe I just take the debt to the grave??
Thanks
Paying off a tiny student loan to get a $1M mortgage.
People sure enjoy getting rekt. 😆
Please don't give out financial advice if you don't understand basic financials
Financially speaking, paying your HECS off faster than what the government mandates is 100% a bad idea. This is because you aren't being charged any interest (it's merely indexed). Everyone is just freaking out at the moment because inflation is high this year. But that's just because the value of money is changing due economic events well and truly outside of your control.
My advice is just ignore your HECS debt, effectively. There's nothing you can/should do about it.
But that can mean it just continues to go up, always sapping some of your pay for the rest of your life. Plus mine is pretty high so that indexing is a lot
Exactly, and it also affects your ability to get a loan.
Good luck trying to buy a house when you have a ballooning HECS debt.
@xavster: I've spoken to a mortgage broker about this. It seems that HECS payments are just treated like a reduction in your income, rather than a debt that reduces your borrowing power (like a personal/car loan etc). Basically it's better to have a bigger deposit saved up rather than eat into it by paying your HECS down faster.
@johnno07: Check again. HECS will affect your borrowing power.
HECS is included in pretty much all lender's DTI ratio calculation.
The larger the HECS, the higher your DTI, the less you can borrow.
@xavster: HECS debt will may affect your borrowing power.
Some lenders appear to exclude it from their DTI calculation. See one recent (albiet small) example from Teachers Mutual Bank: https://www.connective.com.au/broker-resources/wp-content/up…
Furthermore, and regardless of whether it affects your DTI ratio, I still contend that the spare cash is better served as forming part of your deposit to improve your LVR ratio - especially if it means avoiding LMI - rather than paying down an interest-free loan for the sake of improving your borrowing power - which seems a bit ass-backwards to me.
I would have to respectfully disagree.
Unless your wages/salary is growing above the indexation rate, you should pay off HECS ASAP.
i.e. pay packet grows at 2% but HECS debt grows at 3.9%
Paying off HECS via voluntary contribution is the best financial decision mathematically.
The only exception here is if you are investing your pay into investments that returns higher than the debt cost.
The only exception here is if you are investing your pay into investments that returns higher than the debt cost
Which is what you should be doing and exactly why I said that paying off your HECS faster than required is a bad idea - financially speaking. Even just zero-effort sticking your extra cash on the ASX200 would have net you a nearly 15% p.a. return over the last 10 years.
So:
Further tip - if possible negotiate with your employer each year to at least index your salary. I realise this is not possible with all employers, but its worth a shot.
@johnno07: Hi Johnno07, as an owner of a accounting/financial advisory firm I need to correct your numbers as it would be misleading financial advice.
ASX200 has an average return of 9.3% p.a. over the last 10 years.
You must also take into account
- management fees when investing in an index fund.
- tax liabilities if you realise any capital gains.
- unit transaction costs.
Investing in the share market is risky, I would assume the risk appetite of a low-income stay at home dad is pretty low, I would recommend he pick a lower risk portfolio product than an ASX fund.
Note that we are now in a contractionary cycle with high inflation. The returns over the next 10 years will be very different.
@xavster: Thanks for the insight! If you don't mind me asking, what are some lower risk portfolio products (other than an ASX funds)? Anywhere I can read up more on this?
Do not touch your HECS, only pay it off when you are forced to. Invest what you'd pay off your HECS with, and more if possible.
There is only one situation (i think) where you should pay back your HECS early.
When I cleared mine, I was on my final year of paying it off, but indexation occurs before EOFY. So make a voluntary payment before indexation and before EOFY so you don't get indexed. You will in theory pay twice (as a chunk of your pay is coming out to go to HECS anyway) But you get it all back at tax time.
I won't lie it's a bit of an effort for a little amount, but I found it worth it.
Same same.
For me, at the beginning of the FY when I would pay off my HECS, I informed my employer not withheld PAYG HECS payment. I saved that amount up, and paid all in May that FY before indexation.
That was when Tony Abbott was PM. That long ago
Clever
So many of my friends have this and the reason we have this problem is because education in modern capitalist Australia is treated as a commodity to be bought and sold in an "education market". It is not about helping students to learn, growing as a person or contributing to the welfare of society. It's all about generating profit for private education providers
Phasing out tuition fees is a no-brainer fix to this problem. Now this dilemma doesn't exist anymore
Making tuition free has its own drawbacks. Look to countries like Finland that have free college.
A number of their adult population are staying much longer in college which delays their working population, also, it is breeding a group of people that never want to work.
also, it is breeding a group of people that never want to work.
And the ones that do want to work are content with the idea of working 25-hours a week walking dogs with "philosophy professor" as their fallback career.
Strayamaaaaate
I think it's a bit naive being a person in their 30s to not consider that the rules could easily change in our lifetimes too. I mean that big national debt pile will have to be addressed at some point, and things like combined income, reducing the threshold, or other ways assets and debts end up being included.
For now I guess lucky you? What's that expression … blame the rules not the players?
Alternatively, take the savings, put it into some good investments. Buy some shares. Buy a house and rent it out. Make yourself some passive income streams.
Fall Out Boy - Take This to Your Grave
Good on you for being a primary carer. To the child/children this could be more important than wealth. Just be wary that HECS hanging over your head could make somethings unnecessarily complicated for instance if you got back into hardcore work and wanted to borrow for a home.
Owning a 🏡 is overrated.
It’s a pretty nice feeling if you own in a good area. But understandable if you own somewhere undesirable.
Not when you have no mortgage, no rent, no landlord
These are the people the Australian government helped to education. Entitled and ungrateful.
Do you mean boomers that got free higher education funded by taxpayers and then took it away when they were done?
Entitled and ungrateful.
Two wrongs doesn't make one right. Thanks for agreeing with me.
There is no wrong here.
The young are playing by the rules that the boomers set.
Keep the income below the threshold and avoid paying the student loan.
@rektrading: That's why I called people like OP entitled and ungrateful. But you want to counter that by claiming the boomers are entitled and ungrateful? I agree on both.
Educated entitled and ungrateful
Don't twist my words. If you want to quote me, quote the full sentence.
boomers entitled and ungrateful
I didn't make that claim. Rektrading did so you should ask him instead.
Are you banging on about a short period of free education that not all boomers took up again?
Hah
It’s always this strawman argument.
The past is in the past.
The rule now is to avoid paying the loan by keeping the income below the threshold.
@pogichinoy: I'll stop bringing up free education when boomers stop telling young people to pay for education.
@rektrading: Using that one decade must warrant an argument in your books. LUL
Guess how long an entire generation is?
Us millennials need to stop being whingers
@pogichinoy: Young people need to stop being pushovers and stop feeding off the table scraps that boomers leave behind.
@rektrading: There’s always been wealthier people. Boomers had competition.
Us millennials do too.
There is no free ride here. I dunno why so many expect it to be like as if they’re afraid of hard and smart work.
It's everyone else's problem now.
Consider that the greens may work with Labor to cancel all student debt
Guaranteeing you right now it won't happen - do not bank on this, make smart financial decisions today rather than random guesses over low/no probability events in the future
Take it to the grave, we need more stay at home Dads. <3
Depends If you are ever at a point where you want to take out a loan (such as to buy a property or investments), AND you are earning enough to start paying HECS as part of your taxes, then you may want to consider paying it. I'm always putting my money to investment properties, i'm now reaching a point with my mortgage broker where he has said that come my next property purchase i would be better off to pay the remainder of my HECS debt outright to eliminate me ticking the "do you have any remaining HECS debt" box, just by me unticking that box my borrowing capacity will shoot up.
HOWEVER, if you are never going to take out a loan, or never earn enough to pay tax, then you have no incentive to pay off your HECS debt, but it also wouldn't surprise me if the gov will push something out in the future to get that HECS debt paid off even if you aren't earning much or anything.
HECS does effect borrowing capacity but it is a double edge sword. If you pay off your HECS this reduces your deposit value. It only really make sense if you have a low HECS value which can easily be paid off which also doesn't materially effect your deposit. With the huge HECS value people are now accumulating it really doesn't make sense to pay off HECS voluntarily when you have a home loan.
Sorry friend, you're wrong, It definitely does effect borrowing capacity. I'm experiencing this first hand.
Look at it this way. 1 of the major factors behind determining your borrowing capacity is your ability to service that loan amount. a major factor to assess your serviceability is your salary after tax. HECS debt impacts your salary after tax (when earning over a certain figure), therefor HECS debt CAN and in many cases (like my own) WILL impact your borrowing capacity.
They literally said, first line, it does affect borrowing capacity. And then went on to explain the nuance about the deposit vs servicing requirements.
Then you just replied and went 'na bra it does'.
Try reading it again 🤣
Please read my actual response. It does say in the very first line "HECS does effect borrowing capacity".
Then l go onto comparing actually paying off hecs v not paying it off.
Normally the money you will use to pay off the hecs debt will come from your deposit.
If paying off your hecs debt reduces your deposit to below 20% of the house. Then this will also reduce your borrow capacity unless your willing to pay for lenders mortgage insurance.
To be honest 12k isn't actually a lot of HECS Debt.
The answer is no to voluntary repayment.
Mandatory repayment well that can't be helped.
Pay it off. Why should everyone else pay off the debt you took on? Good example to set for your kids as well, just because you can get away with not paying your debt then why not?
The borrowers are playing by the rules.
The only example you'll be teaching your kids here is financial illiteracy.
There is no price in paying off government debt. The government makes debt available for you to advance yourself and contribute to the economy in ways bigger than just paying back an indexed debt.
Price? Pride*, I meant.
Do you think all them rich folks are setting all these moral standards?
Some might argue that is theft.
Theft is the act of unlawfully depriving someone of their property.
The borrowers aren't stealing people's property. They're playing the game within the rules.
Those people would be dumb
Greens' policy is to wipe HECS/HELP debt, so it would be prudent not to voluntarily pay it off. Given they do hold the balance of power in the Senate, it is not beyond the realms of possibility this policy could be implemented sometime in the next 20 - 30 years (which is within the OP's working lifetime).
https://greens.org.au/news/media-release/greens-plan-wipe-st…
This will never happen. Student loans being an issue is something that has been imported from American politics where it is an actual issue. It would be such a bad idea that any government doing it would actively damage our economy, thus will never happen
Greens' policy is to wipe HECS/HELP debt, so it would be prudent not to voluntarily pay it off.
This is a policy that has an asymmetric return. Increasing the population's knowledge can yield greater productivity.
It's far better to spend billions on education than billions on submarines and other war machines.
This is just despicable, its people like this that then make these policies fails that are basically trying to help people get a education and a job. I understand if the person never makes money and not able to pay it back but otherwise… WOW. Basically theft, you know how it works and the idea behind it and still go ahead to get the money but not pay it back. This is NOT what Ozbargain is about or why it got started. This is NOT a Bargain but rather a RORT.
You don't understand modern economics.
Nobody with any fiscal or economic education will say what you've said, it's just you. That should give you some pause.
No worries, all my friends, some of whom are in the finance sector. Have all paid off their HECS, glad i hang out with people who have morals.
The fact you think this has something to do with morals tells me everything I need to know.
1) if someone lends you money, especially someone legally competent like the government, with predetermined rules, following those rules isn't immoral.
2) economically speaking, the government would much prefer you don't pay it off because if you have less money to spend in the economy, the economy grows slower.
So you are wrong on atleast two major fronts. I dont care about your bozo finance mates.
@Scantu: hahaha, the fact that you think it doesnt, tells me everything i need to know about you.. My bozo finance mates know everything there is to know about economics and finance.
@lonewolf: Not sure if you're trolling now to be honest, but I'll take your lack of addressing the substantive points as a white-flag wave
@lonewolf: Once again… If you think not repaying a government debt more than you have to is immoral, you don't understand economic policy, or morals.
@Scantu: No worries, I will rather listen to my mates who i know what they have achieved and done in their education and work than some random joe off the web.
@lonewolf: Luckily for you I've given you the factual reasons why you shouldn't pay off government debt quickly, there is no need to trust any person. Just respond to the facts.
On a serious note, if that's what your bozo mates think, sounds like I have a senior job in finance waiting for me.
@Scantu: yeah go for it. These guys went to selective schools, then double degree economics and law at UNSW, completed all the stages of the CFAs on their first attempt and while going up banking career paths. Moved on from Mac Back when they reached department head levels. Now are at the MD levels of different International Banks or investment funds / mergers and acquisitions companies. One of them retired at the age of 32 because he and his family didnt need him working anymore but got bored so goes back every now and then to work for a while as a MD and then retires again when his family wants to travel. Some of their wives are around the same level at banking institutions.
I have a huge amount of respect at what they have done and how hard they worked to get where they are, I know I wouldnt have been able to do that.
But hey, they dont know crap about economics
@lonewolf: I'm not reading, I don't care about your mates credentials, and why would I - if they think paying of HECS slowly is immoral then they are clearly missing some basics.
Why don't you try responding to some of the substantive points I made. Your commenting reeks of "oh yeah well MY dad's stronger than your dad 👺"
@Scantu: Right so i knew it, I wasnt sure exactly if i was assuming so i gave you the benefit of the doubt but i thought even from your first statement that it seemed insuting. Like i said i dont try get into discussions with people like this. not worth my time. If you had responded more politely then i may have actually been interested.
@lonewolf: Reply to the substantive points.
I know you won't, because you don't know the first thing about economics or government policy.
I dont bother with people who have no morals.
Imagine hanging around with bankers and saying something like this.
Everyone has morals, they just differ to yours.
Don't blame the players. Blame the rules of the game.
Many people have racked up a sizeable HECS debt, then fuk off overseas and not paying a single cent of tax to the Australian Government.
More of a tax issue than HECS in itself, really Australia should have an international tax base like Canada. Whether they pay for it or not…that's a separate issue.
Canadians can get a second citizenship and
then renounce the Canadian one to avoid global tax theft.
Grave mate and good luck on being a stay at home dad! Have fun
Man what the hell, honestly. Just pay it off.
Everyone looking for a free ride at someone else's expense.
I don't understand where this mentality comes from, would you mind telling me?
The government literally does not want you to pay it off. Taking money out of your pocket to sit in a government ledger takes money out of circulation in the economy, shrinking the economy.
They would much rather you spend it and promote economic activity.
So tell me who the hell this (wrong) "moral compass" is watching over you? Because it isn't the government like you think it is for some bizarre reason. I don't understand why people make up rules to literally disadvantage themselves?
The feds don't need the money. They own the money printer.
The government literally does not want you to pay it off. Taking money out of your pocket to sit in a government ledger takes money out of circulation in the economy, shrinking the economy.
They would much rather you spend it and promote economic activity.
Your same 'logic' can apply to taxes. The government clearly doesn't want us to pay that either…
Sorry no it doesn't apply, you don't borrow the money for your tax from the government in the first place. You create that value and then give some of it to the government.
Also though as a side note, yes, I don't pay any more than I have to in tax either because that wouldn't make sense.
Anyway this isn't really up for debate - the government wrote the HECS laws that way on purpose.
@Scantu: And add in the fact that having HECS debt hanging over you actively prevents you from creating value in the first place. So many young bright minds have been stifled from taking risks and starting businesses etc due to HECS. Its just another a moronic neolib policy and it needs to die.
@stumo: HECS doesn't prevent young people from starting a business.
It's actually a good way to avoid paying HECS. They can use the business to structure their income and keep their tax liability below the threshold.
@stumo: I'm not sure you know how HECS works given what you've said, noone is not doing things they want to because they pay back 10% of their loans (At maximum! When you earn 100k. The reality is most people pay 2%).
neolib policy
Did you pick that one up and like the look and sound of those words? Because this makes no sense to say about a decent system of paying for education.
Is every policy you don't like just automatically a neolib policy?
In regards to morals, i think it's the idea of Fairness that gets to some on this thread. I don't think fairness matters in this situation, others do. I also think theres some judgement going on here because they know OPs partner earns a reasonable wage, OP doesn't work And They got an inheritance. If the backstory was different, I think the mob might be very different too.
True, but as far as fairness goes the government doesn't care if you pay it back and would likely prefer if you don't so I don't know whose morals people are going by there 🤷
Yeah… Starting to pay my kiwi student loan off @ a similar amount. They have made mistakes re: my loan amount + have wacky interest. Eg, miss a mandatory six monthly payment and you get cumulative interest charged from that point. Recommend checking through everything before paying.
HECS debt will significantly impact your ability to qualify for a mortgage.
HECS is indexed to inflation and it's going to go up fast…
As of April, UK inflation is ~9%, US is ~8%
They are good leading indicators of where our inflation rates will go…
In this environment, having debt is a big no no…