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Pay off your student loan

student loan

When you attend university or an approved higher education provider, you can get a HECS-HELP loan to pay for your studies. Once your studies are completed, the Australian Taxation Office will automatically take back a percentage of your loan each year once you reach an income threshold until your loan is paid back in full. The higher the loan amount, the larger the percentage will be.

There is no interest on a HECS-HELP loan but indexation occurs each year that the loan is outstanding. Thus, your debt grows each year that you do not pay off your loan. The money coming out of your tax each year to pay down your loan could be better spent earning interest to build your wealth.

Implementation and cost

  1. Pay off your student loan as soon as you can. The sooner you pay your debt, the less you will pay through indexation.
  2. Decide on a savings plan to pay off your debt and set aside the money each month in an interest earning ‘student debt savings account’.
  3. Choose to make voluntary repayments every year before lodging your tax that are above the compulsory repayment rate.

While you are paying down your loan, the interest earned in your ‘student debt savings account’ will help to offset the indexation rate. Indexation in 2021 is 1.8%. A savings account can earn you around 1.75%.

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