My $90,000 debt
As of January 2021, I have a $90,000 debt for my university studies - HECS loan/debt.
The debt is made up of:
Undergraduate degree in Engineering and Commerce (2005-2010)
Masters in Public Health (2015-2017)
Ministry studies (2017)
Various “one-off” enrolments I’ve made to online courses that didn’t go anywhere (2012 - 2015)
How long is that going to take to repay?
I have been making repayments, since entering full time work in 2011. These payments are managed automatically through my taxes.
A quick check using the https://www.paycalculator.com.au/student-loan/ site, shows it’ll take me another 9 years to pay the debt off, assuming my salary doesn’t go up over the next few years and the indexation rate stays steady.
Screenshot from Paycalculator.com.au - I’m not sure how accurate it is so consider it more as an estimate!
What about interest?
Technically the Australian government doesn’t charge you “interest” for the HECS loan - instead it gets “indexed” annually (see comment below from Study Assist site).
Indexation comment from: https://www.studyassist.gov.au/paying-back-your-loan/loan-indexation
According to the Australian Taxation Office the indexation amount has been around 1.8% recently:
Indexation Table
https://www.ato.gov.au/Rates/Study-and-training-loan-indexation-rates/
So on a $90,000 debt, that’s around $1,620 per year in indexation.
My plan for this debt
I’ve decided (like many) to not make any extra repayments and allow this debt to be paid off at the minimum required rate as defined by the Australian government.
A few reasons for this:
The “indexation” rate is significantly lower than my minimum payments, so I’m making a decent dent into the debt every year without having to increase the repayment amounts.
The HECS debt pulls me “backwards” at 1.8% every year while investing in something like index funds pushes me “forwards” at 6% every year. I’m able to put my money to better use investing in index funds than paying off my HECS debt.
Let me know if you have any questions on this exciting topic around my HECS debt and plans associated with it. This is my initial thinking and just wanted to share it with you as I build up my body of writing around my personal finances.
As always - this isn’t personal financial. Please speak to a professional advisor before making any investment or personal finance decisions. See this Australian website for more information: https://moneysmart.gov.au/financial-advice
Sanjee