Paying off your HECS-HELP debt – is now the time?

On 1 June this year, all HECS-HELP debts will be subject to indexation of 7.1% – the highest rate in decades. Should you pay off your HECS-HELP this month to avoid that indexation? As always, the answer is … it depends.

A quick HECS-HELP refresher

When someone attends an Australian university or approved higher education provider, provided they meet eligibility requirements, they’ll be given access to HECS-HELP to pay for their studies. This means they don’t pay anything upfront for their higher education. The cost of each subject they take is simply added to their HECS-HELP loan.

This loan is then repaid via the tax system once they start working and earn above the compulsory repayment threshold (currently $48,361).

While HECS-HELP loans are interest-free, they are subject to indexation, which adjusts debts each year in line with inflation. 

As the table below shows, the indexation rate between 2010 and 2022 averaged 2.12%. Enough to add a noticeable but manageable amount of around $500 each year to the average HECS-HELP balance of $22,636.

Year  Indexation percentage
2023 7.1%
2022 3.9%
2021 0.6%
2020 1.8%
2019 1.8%
2018 1.9%
2017 1.5%
2016 1.5%
2015 2.1%
2014 2.6%
2013 2.0%
2012 2.9%
2011 3.0%
2010 1.9%

On 1 June 2023, the indexation that will be applied to HECS-HELP debts will be 7.1% (due to current high inflation levels). This is the highest increase since 1990.

How do you know how much your HECS-HELP debt is?

You can check how much you owe on your HECS-HELP debt via the Australian Tax Office (ATO) either online through myGov or by contacting the ATO directly on 13 28 61.

Should you pay off your HECS-HELP debt this month?

Given the indexation rate is higher than savings and mortgage rates, many people are wondering whether they should rush to pay down their or their child’s HECS-HELP in the next couple of weeks before indexation is applied.

As with all things financial, there are many things to consider before deciding whether it’s the best path to take.

Your financial advisor is the person best placed to help you make this decision.

How quickly do I need to act?

In the lead-up to the 2023 Federal Budget, the Greens were pushing for a bill that would  freeze HECS-HELP indexation this year. So it was worth waiting for the Federal Budget to be handed down before acting. Now that the Federal Budget has been delivered with no freeze in sight, right now (like literally, right now) is the time to touch base with your financial advisor to have the ‘should I pay it off now?’ conversation. 

It’s particularly important to note that you cannot wait until the very end of May to make that final payment. Payments can take several days to clear and if your final payment hasn’t cleared before 1 June, indexation will be applied.

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