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.
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.
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.
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.
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.
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.
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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