Why I ignore my student debt

Whilst our US buddies are straddled with high-interest student loans, Australia is mildly lucky that the government provides ‘interest-free’ loans for higher education (IT SHOULD BE FREE!).
Currently, government supplied student loans (‘HECS-HELP’) are indexed to inflation which at the time of writing was 1.5%. This is basically the cheapest loan you are ever likely to get, and the reason why I don’t make any more than the compulsory repayments which the government takes out of my pay. At the moment it will take me about 9 years to pay back my $35,000 HECS debt without a voluntary repayment

 

The two main reasons why it’s not worth paying down your student debt in Australia:

  1. You’re being charged 1.5% ‘interest’ on the loan which just keeps it on track with inflation – there is no economic sense to use your spare cash to pay more than compulsory repayments which are taken out through the income tax system because either a) you can earn 2.75% putting that money in a savings account (a gain of 1%), or b) you have debts with much higher interest rates.
  2. Either you earn over $54000 and you will be forced to pay down that debt as compulsory repayments are taken out of your pay anyway OR you don’t earn over $54000 and will never need to pay it back!

This situation may change in the future with regular government rumblings about policies to dig deeper into people’s pockets for something that should be free, but at the moment it’s just not worth worrying about your HECS – build your future instead through some savvy financial or personal investments.

The current compulsory repayment rates as a percentage of your income, from the ATO:

2016–17 repayment income thresholds and rates for HELP, SSL, ABSTUDY SSL and TSL
Repayment income (RI*) Repayment rate

Below $54,869

Nil

$54,869 – $61,119

4.0%

$61,120 – $67,368

4.5%

$67,369 – $70,909

5.0%

$70,910 – $76,222

5.5%

$76,223 – $82,550

6.0%

$82,551 – $86,894

6.5%

$86,895 – $95,626

7.0%

$95,627 – $101,899

7.5%

$101,900 and above

8.0%

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Big tax rebate for educators, nurses, scientists and mathematicians

Have you recently completed a degree in teaching, early childhood education, nursing, mathematics, statistics, science or midwifery AND since become employed in a job that matches your degree qualifications? If so, then you are probably eligible to have your HECS-HELP tax that gets taken out of your pay, returned to you for up to 260 weeks (5 years).

Whilst it is great to get rid of your HECS-HELP student loan, unlike those in the US, the cost of the loan in Australia is relatively cheap (that said, the actual loan itself is often very big!) – it increases by the CPI every year, which was 1.7% in 2015, making it the cheapest loan you will ever get. This means that if you can make more than 1.7% returns from investing your money rather than paying your HEC debt, it makes sense to get the refund and invest rather than paying down your HECS.

How would you go about making more than 1.7% on your money? It’s not particularly hard, just open an online savings account (think: ING, uBank), and you are likely to make over 3% (or a real return of nearly 1.5%). If you invest in an index fund that tracks the market, on a long-term average you are likely to make 5-7% (with a real return of 3-5%).

For more info check out the official ATO website, which includes the application process, or StudyAssist which provides additional details.

This scheme could help you put $10,000+ dollars back into your pocket in the early part of your career and financial journey, right when you need it most.

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