HECS-HELP loans increase, if you make a voluntary payment

This doesn’t necessarily mean you should rush to pay it back.

If you have a HECS-HELP loan, you may consider making a voluntary contribution before June 1 to avoid paying a larger bill.

A HECS-HELP loan is widely considered the least significant debt to worry about paying, thanks to the fact that it doesn’t relate to interest in the same way as a credit card or other loan.

However, your HECS-HELP loan amount is adjusted annually on June 1 to account for inflation, which is literally out of the ordinary right now. This means that from June 1, your existing HECS-HELP loan will be indexed by 3.9%, to take account of rising inflation rates. For context, this is the biggest jump we’ve had in over a decade – with the current rate standing at a meager 0.6%.

Considering the average Australian has $23,685 in HECS-HELP loans, that equates to an increase of about $1,013.72 on June 1. However, it is important to note that the indexation rate (which has just increased) has no impact on the amount you’ll actually repay per year under your mandatory repayments.

Does this mean I should refund my HECS?

This doesn’t mean you should face financial hardship to pay off your HECS debt in full by next month, but it does mean it’s worth considering your situation ahead of the June 1 indexing date.

If you pay off some of the debt before the indexation date, you’ll save 3.9%, but that doesn’t necessarily mean it’s the best investment you can make.

“As a general rule, and obviously it depends on someone’s personal situation, it’s usually not a number one priority. Yes, HECS goes up through indexation, but it has to be considered in terms of the opportunity cost of paying it off faster,” said Glen Hare, financial adviser and co-founder of Fox and Hare Wealth. silver magazine“Given that those with HECS-HELP debt are generally younger and looking for long-term investment strategies, there is a conversation to be had about whether it is better to pay off HECS, which rises with inflation. , or invest in an asset class that has historically outpaced inflation.

“A lot of my younger members are also looking to buy property, so again there’s that balance between paying off HECS or buying their first home.

“The caveat to this is that choosing to put money in the stock market or in a property rather than repaying HECS involves a degree of risk that someone would need to be comfortable with.”

What about erasing student debt?

The decision to increase HECS-HELP indexation without officially raising the minimum wage amid rising inflation has been criticized by Greens leader Adam Bandt.

“If student debt can be automatically lifted with inflation, so can wages,” said Bandt, who is currently campaigning to erase student debt in Australia. “The Greens want to change the law to raise the minimum wage to 60% of the median wage and ensure that wages in female-dominated industries rise at least 0.5% faster than the CPI to close the pay gap between genders.”

However, it’s probably not worth hedging your bets on the hope that student debt forgiveness will be introduced anytime in the foreseeable future.

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Elaine R. Knight