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MONEY HABITS

Paying off your HELP debt early: Is it a good idea?

27 May 2020

Most people with student debt want it gone. A way of doing this is by making extra payments on top of what the government deducts automatically. But are voluntary repayments the best move? Weighing up the pros and cons may help you decide.

Potential advantages

Pay down the loan faster

If the size of your HELP debt stresses you out and you have extra cash to part with, voluntary repayments might ease your worries. But it’s important to weigh up the pros with the cons and consider other ways you might invest your spare funds.

You might want that debt gone if you’re thinking of buying a house. Currently, the amount of your HELP debt is something lenders are likely to consider when working out how much you can afford to borrow. While the rate at which you repay your student loan is relatively low, it may be a good idea to chat to your lender or mortgage broker if you think having it paid off could increase your borrowing capacity.

Increase your available HELP balance

There’s a limit on how much you can borrow from the Australian Government to cover the costs of your tuition fees. Any voluntary repayments you make will increase your available HELP balance, which you may need if you’re considering further study.

Loan indexation

While there’s no interest charged on your loan, any unpaid balance is subject to indexation each year1. Lowering this balance through voluntary repayments will reduce the unpaid amount to which the indexation is applied.

Potential disadvantages

Non-refundable

Any voluntary repayments you make are in addition to compulsory repayments and aren’t refundable, so you should consider how best to use any spare cash you have, especially if you’re on a tight budget. Would it be better to save for a house or investment property, or put this money into shares or a higher-interest savings account? It all depends on your income and what you value, but it’s important to weigh up your options.

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No deadlines

While you can't avoid paying it once you earn enough money, you're not forced to pay off your student loan balance in a rush, which can be incentive to attend to other debts first or use your money to travel or buy a house.

Interest-free

The interest-free and low indexation nature of HELP debt is one of the reasons you may decide to stick to only making compulsory repayments. Saving your extra cash to pay down any higher-interest loans you may have could see better long-term outcomes.

No discounts

Although there used to be a discount associated with paying down your loan earlier, discounts for voluntary repayments were discontinued from January 2017.

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Banking products are issued by Suncorp-Metway Ltd ABN 66 010 831 722 AFSL No 229882 Australian Credit Licence 229882 (“Suncorp Bank”) to approved applicants only. Eligibility criteria, conditions and fees apply and are available on request. Please read the relevant Product Information Document before making any decision about this product. Contact us for a copy. Any advice does not take into account your particular objectives, financial situations or needs, so you should consider whether it is appropriate for you before acting on it.

The information is intended to be of general nature only. We do not accept any legal responsibility for any loss incurred as a result of reliance upon it – please make your own enquiries.

1 https://www.ato.gov.au/Rates/Study-and-training-loan-indexation-rates

 

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