It is usually referred to as the “best loan you’ll ever get”.
So ought to graduates try to put their cash to work elsewhere?
Or, ought to they pay down their student loans as rapidly as attainable?
We requested one knowledgeable what you must prioritise.
Is your student loan (HELP debt) actually the very best one you may ever have?
Griffith University Business School lecturer Tracey West mentioned that was most likely true.
Because of its low curiosity and excessive payback revenue threshold.
“HELP is known as an income-contingent loan, meaning repayments are only collected once your income meets a threshold — currently $55,874 per annum in 2017-18,” Dr West mentioned.
“The current repayment rate is 4 per cent of taxable income on this lower threshold, and rises by income bands to 8 per cent above $103,766 per annum, and the employer withholds this repayment alongside withholding tax.
“The worth of the student debt is listed to the CPI [Consumer Price Index] annually, which was 2.1 per cent in March 2017.
So when you have different money owed what must you do?
Pay them off first.
“Absolutely, a person should repay a car loan, credit card, home loan, or other debt that has higher interest rates because it compounds more quickly over time, and because their behaviour in loan repayment [or lack thereof] will impact their credit rating,” Dr West mentioned.
And contemplating Australia’s family debt is among the many world’s highest, it’s most likely not a foul concept to start out paying these down anyway.
Will the way in which student loans work ever change?
It may, if the Federal Government has its means.
“Two major changes [include] reducing the repayment threshold to $42,000, with a reduction in the repayment rate to 3 per cent, and to change the indexation to be linked to the bond rate [of government borrowing] rather than CPI,” Dr West mentioned.
“This means debt holders will start repayments earlier and the debt will compound faster.”
A spokesman for the Federal Education Department informed the ABC the discount within the reimbursement fee can be 1 per cent and the Government, “has not proposed applying the bond rate in the legislation currently before the Parliament”.
Is it ever price paying off your student loans earlier?
Dr West mentioned consensus on student debt appears to be set and overlook because it takes care of itself.
“In the early career phase of an individual this approach makes a lot of sense, as acquiring other assets and lifestyle demands take priority, like a car, travelling [and] saving for a home deposit,” she mentioned.
“However, as with other debts, the HELP debt is still compounding over time, albeit at a low rate.
Does paying off your HECS early assist at tax time?
“There are actually no tax advantages related to early reimbursement of HELP debt,” Dr West said.
“From January 2017, reductions on up-front contributions to the training supplier and voluntary funds of $500 or extra to HELP debt have been discontinued.”
And Dr West said you also might have less idea of what you actually owe.
“The ATO ceased mailing out account statements in 2013, so many students could also be unaware of their HELP debt stability.”
You can find this info out through the ATO’s website or through your tax accountant.
How much can you expect a HECS debt to increase if you just leave it?
“If you assume a median inflation fee of three per cent every year, a HELP debt of $20,000 will accumulate to $26,900 in 10 years’ time, with no repayments,” Dr West said.
But there are not actually any calculators available to help you figure that out.
Dr West says even she had some regret about not paying more of her HELP debt down earlier
“I’ve first-hand expertise with an accrued HELP debt after taking part in fairly a number of examine packages, and never assembly the revenue reimbursement threshold till later in life,” she said.
“Now that I’ve a younger household and mortgage commitments, my thoughts has turned to ways in which I can improve my disposable revenue, and paying off HELP debt is a method.
“Unfortunately, it has accumulated to quite a hefty amount so it will require a concerted effort to pay it down, and I’m better off investing that extra money in the stock market.