Thoughts on Tackling $155k HECS Debt

LNewtonFunk on 03/06/2022 - 12:21

Hi all,

My partner and I have recently recovered from the crazy that was COVID messing with all our plans financially.

I have my HECS mostly under control (should be done in 2 ish years), but she has a rather insane number to work with, and I am just looking to be pointed in the right direction for how we can further look into dealing with it.

Her HECS debt, after the recent 3.9% Indexation from a couple of days ago, is now sitting at a whopping $155k (numerous degrees, but all settled now and no more planned).

She makes roughly $79k gross base per year now that she has finished her degree and is working full-time. This may grow in the future, but would take a couple of years at a guess.

Totally understand that no one really comes after you for HECS so "don't worry about it". We get that.

We are planning to buy a house in the next year or so once a few other things in life settle into place for us.

So the worry has turned to how much this $155k debt will impact our loan capabilities. Not entirely sure how it works, but my understanding was if you got pre-approved for say $500k, you would actually be working with $345k due to the HECS debt. Is this right? I may be way off with that one.

The next order of business then, would be how does one even start to tackle a debt this large? And what are the smarts about trying to lower it? I don't believe her mandatory contributions that are paid towards HECS are going to even negate the effects of Indexation at the current rate if it stays that high.

Voluntary contributions are an idea, but they'd have to be quite substantial each year to again even start to combat the Indexation at the current rate.

Just wondering what others have done, or would suggest, in this situation? Is it perhaps just one of those things we just forget about because again, no one comes for you over a HECS debt?

Neither of us are currently into or very clued up on investing etc, so while I know EFTs and the like are often suggested as better returns on your money, it isn't currently something we know a lot about.

Appreciate any and all input.

Thanks!

Financial

Comments

    • NewtonFunk on 03/06/2022 - 13:06
      +6

      She has only started working in her field Jan this year. So in the future, absolutely, but not for the next few years I wouldn't think.
      I get where you're headed with this though. Good idea.

    • blocky27 on 03/06/2022 - 14:02
      +1

      How does that make any difference?

      • Quantumcat on 03/06/2022 - 14:23
        +2

        She can then choose to pay herself less than the minimum for paying anything towards HECS (personally I would rather start paying it off).

        • RMBC on 04/06/2022 - 07:52
          +1

          Still need to live, and your drawings still end up being considered income through various tax provisions. It helps with delaying the taxing point, but not circumventing it. Plus if the intent is a loan, it hurts the position anyway

        • Scantu on 06/06/2022 - 21:46

          Likely not the way it sounds like she's working. Will attract PSI.

      • rektrading on 03/06/2022 - 14:29
        +2

        🤔 Jobs' $1.

  • netjock on 03/06/2022 - 13:59
    +2

    If she is making $79k I'd suggest tackling the job market. Anything below $100k shouldn't be too hard to get given the jobless rate.

    If you really want to massage the number find a second part time (permanent) job 6 months before your loan application and then quit once you have your loan.

    Trying to pay down $155k in 2 years is tough but making an extra $1k a month part time would let you service a larger loan.

  • Mechz on 03/06/2022 - 14:00
    +2

    Do a runner like Skaise.

  • Tee Rex Arms on 03/06/2022 - 14:10
    +1

    I guess your wife never plans to have a baby, thus affecting her future income to service said LOAN.

  • us3rnam3tak3n on 03/06/2022 - 14:19
    +4

    As others have said, it's having the debt - not the amount, that impacts borrowing power. It's only indexed to inflation so it isn't worth worrying about imo.

    More importantly, nobody should be taking out the maximum home loan available. That will likely lead to 20 odd years of financial stress.

    • NewtonFunk on 03/06/2022 - 14:56

      This is where my thoughts are at now as well.

      And no way, we wouldn't take out the maximum home loan amount. I don't want the home loan at all to be honest ha, but I also don't want to be renting forever. Something has to give, but it doesn't have to be an insane loan either.

  • brendanm on 03/06/2022 - 17:10
    +6

    numerous degrees

    Her HECS debt, after the recent 3.9% Indexation from a couple of days ago, is now sitting at a whopping $155k

    She makes roughly $79k gross base per year

    Is this some sort of elaborate troll? This is exactly why free University is a terrible idea.

    • Lastchancetosee on 04/06/2022 - 09:21
      -3

      If it was free, she wouldn't have any debt. Works in Europe and worked here until it was stopped.

      • brendanm on 04/06/2022 - 09:23
        +6

        Correct, the taxpayer would be paying for frivolous degrees instead, sounds like a great use of our money.

        • Lastchancetosee on 05/06/2022 - 11:55
          +1

          @brendanm

          There is nothing in the OP's post to suggest the degrees were frivolous.

          Australia offers several postgraduate medical degrees. The students often but not exclusively, come from a medical science, paramedics, or science background. Many have worked in that domain, deciding to pursue a medical degree. This is a significant pathway for doctors and other Allied Health professionals. Many of these qualified health professionals do further study, in areas such as clinical education to improve their supervision skills.

          I don't know OP's partner's background, but if the fees to study medicine are high for local students, they are extortionate for International students. Very easy in either case, for a couple of degrees to clock up $150k in debts.

          As a taxpayer, I am happy to subsidise free education, including trades, and give more people access to it. As even John Howard observed, it is education, research and our universities that drive innovation.

          • brendanm on 05/06/2022 - 12:53
            +3

            @Lastchancetosee:

            There is nothing in the OP's post to suggest the degrees were frivolous.

            They have said:

            3 Bachelors, and 1 Masters. 2 of those bachelor degrees are unrelated to anything she now works in.

            Sounds pretty frivolous to me.

            As a taxpayer, I am happy to subsidise free education

            So am I, if it's education for things that are needed. Reduced/no fees for high achieving students, for areas that are actually in demand, would be a good idea. Handing out free bachelor's for absolute garbage, for career students, not a good idea.

            Taxpayers don't need to be subsidising rubbish, purely so "academics" can boast to each other about how many degrees they have, while having zero real world application. If they want to do that, they can pay for it themselves. Taxpayers already pay part of the fees for commonwealth supported places, we don't need to be lumbered with more.

      • SlavOz on 04/06/2022 - 17:37
        +3

        Free uni just passes the problems of people like OP onto everyone else. Why punish other people for your poor financial choices? It's not fair.

        Such programs are basically just welfare for mega corporations. Larger pool of customers who don't care about the price means they have unlimited demand and can set any price they want.

        Ironically the people who advocate for this constantly slam rich corporations at the same time.

        • brendanm on 05/06/2022 - 12:58
          +2

          Won't somebody think of the universities!

          Those poor University heads on over $1m a year, we can't be limiting their pay rises.

          • lonewolf on 06/06/2022 - 10:53
            -1

            @brendanm: Having worked at a uni for more than 20 years, things have changed a lot in the last 10+ years. The VCs salaries more than doubled or tripled, but heres the problem, a lot of the blame was put on the government reducing a lot of funding for universities (also including no job keeper and hence a lot of jobs were lost during covid but not higher management of course) .

            The VCs and higher management seem to say the reasoning behind this new tradition of paying so much more for the higher management is because they are trying to attract people who can bring in money / make money for the universities due to government funding being reduced. Frankly I dont think thats the full story as they just want to justify increasing their salaries as well as there is a lot of other dodgy benefits provided which i probably cant go into on a public forum.

            BUT this is only the higher management, as the medium to lower level staff who actually do the work on the ground, their salaries have not changed or been bumped up besides inflation. As well as their jobs are far more difficult as a lot less staff (because when higher management gets paid crazy amounts then that money has to be taken from paying other staff and hence a lot more job cuts) .

  • nekro on 03/06/2022 - 18:24

    Pay it!

    • donga100 on 03/06/2022 - 19:10
      +3

      No, definitely do not pay it! (yet)

      In terms of getting a home loan it only has a minor impact on your serviceability as mentioned by several others above. The best thing you can do with your money to improve your home loan prospects is adding it to your deposit as this will allow you to buy sooner or to do so without paying LMI. If serviceability is your main issue you would be much better off paying off any other debts, starting with the smaller ones first to eliminate them thus creating higher income (lenders look at income after tax, existing loan repayments, living expenses, etc.) or the ones with highest interest rates for a better ROI.

      The only reason you should invest in ETFs is an alternative to a High Interest Savings Account (HISA) for your deposit savings but consider how long you intend to save for before buying a house as the brokerage might make it unprofitable.

      Once you have a mortgage, making extra repayments into a redraw/offset account becomes one of your best investment options. This will save you money on interest at the % rate of your mortgage and because you have "saved" money rather than "earned" it there is no income tax payable on the return for your investment. This means that if you are paying 3% interest on your home loan you would need to earn 4.44% on an ETF/other investment to achieve the same ROI. Yes, it is possible to achieve 4.44% ROI but it comes with risk whereas the money saved on interest is guaranteed. As an example, VDHG which is one of the most (the most?) popular ETFs in Australia has only returned 12.85% over the last five years. Money invested in a redraw/offset account is also available instantly should you need it for emergencies as opposed to shares/ETFs or other assets which take time to liquidate (sell).

      For more long-term investing/wealth creation see my comment here about adding to your superannuation.

  • rektrading on 03/06/2022 - 18:33

    Buy, borrow, die.

  • voiletmay on 04/06/2022 - 07:25
    -3

    It is not going to affect borrowing for a home loan what so ever. Do not worry about it.

    Barefoot Investor books say to take your HECS debt to the grave and that is what I fully intened to do.

  • Mugsy on 04/06/2022 - 08:14

    Buy a property… Pay that off before putting extra repayments into HECS. The property costs you more so you want to get that under control first

  • ceremonialbagel on 04/06/2022 - 08:24

    It would depend on the bank, but many don’t count HECS against your loan capability as it’s a government loan that has set repayments (mine didn’t count it). If in doubt, I’d ask banks you’re looking at.

    • ceremonialbagel on 04/06/2022 - 08:26
      +2

      The more important thing is cancelling any large limit credit cards/reducing the limits when you’re getting a loan. The limit will be subtracted from your borrowing capacity.

      • donga100 on 04/06/2022 - 18:37

        Good advice. Some people actually sign up for credit cards thinking it will help them when applying for a mortgage! lol

        • Scantu on 06/06/2022 - 22:13
          +1

          Likely from the fact it will help you in the States

  • jrvb42 on 04/06/2022 - 18:53

    So after racking up the first 40k doing the first degree and not getting a job, somehow the government and her were both brainless enough to do it again. And again. The government is not smart enough to run the education system, and students who do this aren't smart enough to be admitted to uni a second time on the public purse (full fee, not just HECS) should be mandatory.
    Subsidized education should require a commitment from an employer to employ the person when they graduate for at least 12 months, especially when fresh grads need 2 years experience for graduate roles, bad many fields have no jobs available.

  • Misplaced on 04/06/2022 - 19:34
    +1

    Earn more money, or earn less than $55K for the rest of your life so that you never pay it.

  • dmcneice on 04/06/2022 - 20:28

    Even though my HECS payout was only 50k at the start of this year (was 110k 2 years ago), it made a huge difference paying it out to our borrowing capacity. I believe it has to do more so with your repayments, as her take home after tax is significantly less with a HECS debt. So paying it out will increase your borrowing capacity.

    If you already can get there with that, your sweet.

  • Homr on 04/06/2022 - 20:37

    155k WTF? That's enough for a 1million house deposit zomg

    • May4th on 05/06/2022 - 14:32

      or if you are in sydney, not enough for even one

      • Homr on 05/06/2022 - 14:47

        lol i am in Sydney

  • prisonmike on 04/06/2022 - 21:11

    Crowdsource the hecs just like americans. With 155K people decide to donate you $1 you will be able to pay of the hecs pretty easily.

  • AlanHB on 04/06/2022 - 22:22

    Apart from the good advice above, you'd think that those qualifications would get her a better paying job. I'd start looking.

  • miwahni on 04/06/2022 - 22:27

    A number of commentors have said that her income will be reduced by the amount of the HECS repayment. Not always so. If you (and by "you" I mean the hypothetical lender) take it off her income, then you're reducing the tax burden as well, which is incorrect. (lower income, lower tax). However the HECS debt doesn't reduce your taxable income. The correct treatment is to refer to the ATO scale (for $79k it is exactly 5% of earnings) and then add a liability of $329.17pm to the servicing calc.

    Where the actual balance of the HECS debt can muck you up though is if you go to a bank that uses a debt/ income ratio, because that $155k will be included on the Debt side of things. Just google Debt/ income ratio and have a read.

  • raiseyoursteaks on 05/06/2022 - 05:47
    +1

    When I as growing up, the "cool" girls were all going for mass communication degrees then they ended up with average jobs. The ones that did the boring accounting, maths, medicine are all someone today.

    Glad your partner found and steered her direction towards an industry she likes. It's a great balance there and it feels that you guys are younger and just starting out your career. You mentioned something along the lines of medicine, that's good!

    I don't know about how HECS work but I'd imagine any home loan will consider that when they access you. But remember they will also assess both of you together.

    How does your finance work together? Do you have a joint account? Are you willing to help to pay or is this all on her? You don't need to answer this but thinking about it.

    About investing in ETF, shares, forex, crypto there's an element of risk there. Best to buy the blue chips with dividends. There's also chances you could go negative BUT if you're willing to learn and research. It may mead somewhere.

    Getting the debt down requires some querilla tactics. You need to be prudent together, pickup side hustles. Cook your own food. Do surveys and focus groups for some small but really nice supplement to your income. If you can grow your own food, that's also good. Avoid spending on high depreciation assets now.

    When if comes to borrowing, work with a broker. They will be able to advice and help negotiate on your behalf. But try to get into the property plan as SOON as you can.

    Are you guys married? If you're not just think about the wedding and don't make the mistakes many of us did - having big weddings. At the end of the day it's about you two, spend it on the honeymoon. I know some cultures it's impossible to have small weddings. Just saying that the wedding will be a big expense coming up.

  • BluebirdV on 05/06/2022 - 06:12
    -1

    I heard on Dr Karl on triple J you can get free University in Denmark and they even pay for the accommodation! Why would you get wroughted here in Australia?

  • Wallyt99 on 05/06/2022 - 07:35

    Move overseas.

  • El-Rhi on 05/06/2022 - 08:58
    +1

    We really shouldn't let people take out giant loans fresh from high school in my opinion haha

    This is a good point that OP makes. Would like to see the stats of uni students who attend straight from high school who end up wasting 1,2,3 years before deciding what they actually want to do versus those who take a year or two off after high school then go back to uni knowing exactly what they want to do.

  • DarkOz on 05/06/2022 - 09:09

    She should just grave it just like the other poster. Never get paid above the minimum yearly income and let the debt balloon to above $1m some 50 years later.

  • adn on 05/06/2022 - 10:26

    Talk to a proper broker they will clarify your borrowing capacity and how much you can borrow against the proposed property.
    HEC is the cheapest debt you will have so pay it over time. However during the second last year. Pay the rest off before a certain date to not get CPI on the last year amount.
    After you buy your house just invest in EFT, look at the popular ones like VAS and VGS.

  • [Deactivated] on 05/06/2022 - 10:32
    +3

    if she has 155k debt it's time to bail out bud and if the roles were reversed your resume wouldn't even get thru her ats aka application tracking system

  • duluxe2000 on 05/06/2022 - 16:02
    -1

    Just ignore it so you can sleep better, then vote the the next president who will pardon your debt like Biden.

  • a1k on 05/06/2022 - 21:47

    Onlyfans

  • whitepuma on 06/06/2022 - 08:55
    +1

    from my experiecne with getting mortgages and havign a HECS debt. The brokers/banks want to know if you have a HECS debt (more of a tick box), but they don't really get into detail of the size of that debt.

    they do this so that they can determine your salary AFTER tax, which then allows them to know what loan amount you can service.

    This being the case, from my experience, whether your HECS debt is $10,000 or if it's $150,000, it should mean the same to the banks.

    So in response to what you asked, they won't look at the amount you have in debt, and then deduct that from the total….instead they will want to look at how much you both have as a net salary and check your serviceability of the loan.

  • lonewolf on 06/06/2022 - 10:57
    -1

    I reckon pay it off , dont die with the debt. If everyone decides to do this then at some point the government will use that as a reason to remove it altogether. Which screws up the future generations. But last time i said this, a guy decided to first jump on my back and start insulting me and then started insulting my friends.

    • whitepuma on 06/06/2022 - 11:34
      +3

      i agree in that it should be paid off, but i think the question more comes down to HOW to pay it off. Should someone do additional payments to pay it off? or should that just let it gradually pay itself over the standard payments based on your salary?

      I'm personally with the belief that you're better off letting it pay itself off at it's own rate, and then the money that your saving with additional payments could be put towards investments that are going to appreciate in value, (like stocks or property).

      • lonewolf on 06/06/2022 - 11:39

        yeah, I think letting itself pay off is fine if it is being paid off. Unless you have so much spare cash lying around which some people do and then they just want to pay it all off so they dont have to be reminded of it / see it anymore.

        I just dont agree with some peoples idea that you should never pay it off and do everything in your power to make sure you dont pay any of it off as if its free cash which it isnt because governments will try to use that as a reason for no longer continuing the scheme and then we end up having to have the US system of universities / colleges.

        • whitepuma on 06/06/2022 - 12:21
          +2

          yeah…the people saying don't pay it off are essentially saying, don't earn a salary.

          A bit like saying, the trick to not paying tax is to not get paid…Although their right, it's also has a larger drawback.

  • hdog on 06/06/2022 - 13:40

    No tips but come here to say I can relate somewhat with a debt of 107k before the indexing, paid down from 120k so far.
    I try not to think about it too much, although it stings when I see the money on my payslip not in my pocket every month. And it will continue to be deducted for at least ten years. Also multiple degrees / limited grad employment opportunities here and would really like to get a refund for one of my masters degrees.
    Your partner needs to ignore the debt for now and focus on building her career… more money will come and the debt will slowly ebb away. The indexing over 100k is scary though so definitely share your concerns there.
    On the positive side, I’ve had several refinances with no issues, even now as a single income earner with partner and two kids. It is possible.
    Also being able to be educated is such a privilege so whenever I start to get down about the debt, I try to remember that perspective and it really does help.

  • May4th on 06/06/2022 - 14:07
    +1

    i wouldn't stress too much and just try not to think about it. if you are at the stage where you are planning to settle down and start a family i'd prioritise saving a deposit and buying a house if that's on the radar. your capital gain over time will almost definitely outperform CPI, not to mention having a stable roof over your head and the leverage effect. the CPI indexation will usually be less or on par with your mortgage rates and the effect on your borrowing capacity is there but not much you can do about it, you are certainly not better off paying it off early if you want to buy a house

  • Velt on 06/06/2022 - 20:06

    What were the other two bachelor's in?
    Asking purely for curiositys sake.

  • DiscoJango on 06/06/2022 - 21:03
    +3

    getting multiple uni degrees only to work in barely above minimum wage is like buying several high end ovens, pots, pans and microwaves only to eat migoren noodles everyday.

  • Scantu on 06/06/2022 - 21:48

    Write off her career, always make under 45k and stay at home mum 👍

  • plmko on 07/06/2022 - 00:39
    +2

    Hilarious to see many comments here stuck in the mind set that people have got to pay their debts. The joke is the Government prints money and dilutes your "hard earned" money anyway. The second joke is that Indexation is more expensive than the interest rate from a private bank.

    This is why the we are taught to bash your neighbour who aren't paying their fair share……to be distracted from going after the Government for creating such a rigged system for their corpo mates.

    In reality the Government can easily wave the debt because such austerity is counterproductive to your citizens who are already paying tax and chucking fire on asset inflation via servicing a mortgage: win win on more taxes and winfalls. But you won't find them treating it the same way like they intend to wave the debt of certain construction companies, banks, mining companies, foreign countries for political gain.

    • rektrading on 07/06/2022 - 07:42

      The feds have done a good job programming the majority of people to comply and not ask questions. They waste billions every year on junk projects, hand out table scraps and people still take it like they're doing them a favour.

    • Brodo Faggins on 08/06/2022 - 01:27

      Rorted.

  • marbss on 07/06/2022 - 07:34

    Migrate to another country and don't come back. Problem solved

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