HECS-HELP debts are set to rise 4.7 per cent in June. Here's why Nellie's not paying extra this year

Nellie made an early repayment on her student debt last year. But cost-of-living pressures mean she can’t do it again. (Supplied: Nellie Malseed)

The release of March inflation data means student HECS-HELP debts are set to rise by 4.7 per cent on the first of June this year. 

It might pale in comparison to last year’s indexation rate of 7.1 per cent, but it’s still the second-highest increase in a decade.

Nellie Malseed said she was “shocked” when she learned how much her debt would increase last year. To reduce the impact, she made a voluntary repayment of $10,000 before it came into effect from savings she’d accrued since working full time.

The 29-year-old says another hefty increase just makes everything harder.

From Naarm/Melbourne, Nellie completed a double degree in science and arts from Monash University.

After graduating in 2019 — a year in which Billie Eilish’s ‘Bad Guy’ claimed the top spot in Triple J’s Hottest 100 and indexation was 1.8 per cent — Nellie was left with a HECS-HELP debt of just over $40,000.

She says she’s now paid off more than $21,000 but has $23,639 left. Her debt is estimated to increase to $24,750 once this year’s indexation is applied on June 1.

Nellie now has a job she loves at an environmental advocacy group. Without her degree, she doesn’t believe she would have even got an interview.

But, while indexation on her student debt is lower this year, Nellie is still worried about the increasing cost of living.

“I’ve noticed other things in my life costing more this year,” she says.

Nellie isn’t going to make a voluntary repayment this year because cost-of-living pressures have made it harder to save money.

“Saving itself is just harder at the moment, so being able to save extra to make voluntary contributions is harder,” she says.

Should you use savings to pay off HECS-HELP debt?

To reduce the impact of last year’s record hike, many Australians paid some or all their student debt off early. Nellie saved herself $710 by paying off $10,000 before indexation was applied last June.

While paying early has always been an option, certified practising accountant Jarrod Rogers says it hasn’t always been attractive.

“[That’s] because the [indexation] rate applied to your HECS-HELP debt was [historically] less than you get on a savings account, or by paying down your mortgage.” 

But when the indexation rate is higher — such as it has been in recent years — the pros of cons around voluntary contributions can shift.  

Because the Albanese government has flagged changes to HECS-HELP debts, Mr Rogers says that people should wait until the budget before making a decision either way.

“This year in particular — if they’re going to change the rules — you should wait until after the budget night [May 14],” Mr Rogers says.  

People should also consider the “the irreversible nature” of HECS-HELP debt, he adds. If you make a voluntary repayment, you can’t borrow or withdraw that money later.  

He’s advising people to “get your money ready to pay in May just in case you do want to go ahead with it, but wait and see what the budget says.” 

The indexation rate is calculated using a formula based on the consumer price index (CPI).

You can check your HECS-HELP balance by logging into the ATO’s service on MyGov.

Any voluntary payments will need to clear by the June 1 cut-off date, so Mr Rogers suggests scheduling any payments well in advance.

Is HECS-HELP debt still ‘good debt’?

Mr Rogers says he doesn’t “regard anything as good debt, unless it generates more income than the debt”. 

He says indexation is “very much like interest on a personal loan or credit card” but instead the government is adding “an amount to your debt”.  

Having a HECS-HELP debt can also reduce the amount you can borrow to buy a home.

Nellie is currently renting in Richmond in Melbourne’s inner-east and isn’t sure when or if she wants to buy a home. But she still wonders whether it would be better to come to a mortgage broker with a bigger lump sum or less study debt in a few years.  

Mr Rogers says when you apply for a mortgage, three criteria are considered.  

“One is your credit history, but the other two are income to service the debt, and deposit or equity,” he says.

When it comes to voluntary payments, he says the best option depends on the amount of debt you’re contending with. 

For someone who has $5,000 left on their HELP debt but are “paying $10,000 a year out of [their] payroll. That sort of person should definitely clear it”, he says.  

It will increase their wage which will “be better for a loan and $5,000 less deposit isn’t going to be a major drama.” 

However, for people with larger debts, a partial early repayment is unlikely to lead to increased borrowing power. That’s because the borrower would be left with a smaller deposit without clearing their student debt and would still be making compulsory repayments.

Why Nellie’s frustrated about her student debt

Nellie is acutely aware she’s in a better position than many of her peers, but she’s also frustrated.  

She has friends who have reached their borrowing limit, which for most students is about $122,000, and for those studying medicine, dentistry and veterinary sciences courses is about $175,000.  

Nellie says HECS-HELP debt wasn’t properly explained. The little information she remembers being told is that “it’ll be the cheapest loan you’ll ever get”.  

“I’m pretty lucky that my job increases pay roughly in line with the CPI,” she says.  

This is general information only. You should consider obtaining independent professional advice in relation to your particular circumstances.