The Higher Education Contribution Scheme (HECS) is a loan from the government, to you, to pay for tertiary education. It is paid directly from the government, to the university or other education institution. Your HECS balance will accumulate as you continue to study, adding an amount based on the courses taken. Generally, courses cost $1000, to $1,500, averaging $10,000 per year for a full-time study load.
How do you pay it off?
HECS debt can be paid off through voluntary payments at any point through the ATO portal. However, mandatory payments only occur once you hit a certain taxable threshold. See the below table for the percentage of your taxable income will be allocated to paying down your HECS debt. For example, if you had $40,000 in HECS debt and your taxable income was $100,000, you would owe $7,000 for that financial year, reducing your HECS balance to $33,000.
Why is it good?
Taking on debt may have negative connotations. The idea of borrowing thousands of dollars to pay for an education while your young with little money, is scary. It may even be tempting to pay university fees upfront or contribute large voluntary contributions. However, HECS has a key benefit of being set at an ultra-low interest rate, which is the inflationary rate (currently 0.6%). This means, you can invest (or spend) your money without the threat of destructive interest rates accumulating your debt balance (such is the case with education loans in the USA given out by banks). For example, your money would be better off in the bank earning interest, then paying off the government.
For example, say you have $10,000 and considering your options. You could pay back your HECS and save $60 (at 0.60%) or you could invest in a high interest savings account (risk free with the government insurance scheme) at 2.5%, making $250 pa. Meaning paying back your HECS will mean your missing out on $190 per annum.
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