HELP, HECS; Should I pay it off?


In the news this week it was revealed that some bright spark has accrued Australia’s biggest higher education debt – a massive $377,000 (which I’m guessing wasn’t for a degree in accounting – more likely ‘Arts, Public Policy’).

You can almost hear the Baby Boomers laughing when they read this poor sap’s story and saying, “our university education was free”

Hang about. It wasn’t all rosy. This is a generation that endured orange curtains, Ernie Sigley and the infamous Leyland P76 (okay we both got lumped with Hey, Hey It’s Saturday).

I must be getting older. When I was at uni they didn’t even attempt to make higher education debt sound appealing. They called it ‘HECS’. Today, with a hat tip to the political spin of our times, the acronym has now changed to ‘HELP’.

Acronyms aside, one of the most common questions I get is from people wanting to know whether they should pay off their higher education loan.

While you can save 10 per cent on the amount you pay up front (it used to be 20 per cent), it really only makes sense if your old man is Ernie Sigley and you have plenty of cash to splash. Borrowing from a bank at high interest to pay an interest-free (non-tax-deductible) loan isn’t a smart idea.

So what’s so good about HELP?

Well, HELP debts are interest free, though your debt will be adjusted each year for inflation, which simply means the real value of your debt remains the same over the years.

Also, HELP loans are what boffins in Canberra call ‘income contingent’ – in that you only have to start paying when your income hits an indexed minimum threshold (which is $43,151 for 2009/10).

What’s more, there’s a 5 per cent bonus for making voluntary repayments of $500 or more, though most people starting out have smarter things they could do with their money.

So while I dislike debt, HELP isn’t something that should keep you up at night. But your credit cards and personal loans should. Pay them off first, then start saving for a home.

Tread Your Own Path!