Should you pay back your HECS-HELP debt or invest?

Congraduations! You’ve finally finished your studies and landed a job that ticks all your boxes (or, at the very least, ticks the ‘pays all your bills’ box). You might now be asking yourself a question familiar to many young Australians: Should I pay back my HECS-HELP debt or invest my money instead?

After years of eating two-minute noodles for dinner to afford rent, you might be feeling overwhelmed with choice now that you have some extra cash sitting in the bank. So, is your money best spent making voluntary payments to your student loans?

Drum roll please!

The definitive answer to this question is… maybe.

Not the answer you were expecting, huh? But, truthfully, it's entirely up to your own personal circumstances. It can be easy to just follow the herd when you enter a new chapter in your life, but if you're aware of your options you can start to make informed choices when it comes to your new income. Let's break it down - you essentially have 3 options when paying back your HECS-HELP debt.

1. Pay back your HECS-HELP debt as fast as you can

It’s normal if this is your first instinct. We have always been told that debt = bad, so why would we want to hold onto it? Let’s consider the benefit of paying back your HECS-HELP debt as fast as you can.

Although HECS-HELP debt is essentially interest-free, the amount owed does increase over time, as this debt is indexed to inflation. But what does that mean? It’s essentially a fancy way of saying that every year the Australian Bureau of Statistics reviews the average national cost of living and uses this information to create the consumer price index (CPI); then the HECS-HELP debt changes annually to match the new CPI. For current information on indexation rates directly from the Australian Tax Office.

So, as the debt can increase annually, voluntary payments could be a good idea for people looking to relieve themselves of the burden of student debt.

2. Put that money towards other debts

Moving on to your second option now – what's the benefit of paying back other debts before you begin really chipping away at your HECS-HELP debt?

Speaking honestly, HECS-HELP debt might be the cheapest debt there is. The small increase over time is nothing compared to other debts (like personal loans and credit cards), which typically have much higher interest rates and compound faster over the long term.

Paying off higher interest loans will also do more for your credit rating, so if this is important to you, it may be worth focusing your dollars on paying back these loans instead. After all, HECS-HELP debts are like a good friend – you can always count on them to stick around.

3. Start investing your money

If all this talk of debt gets you down, you might enjoy reading about your third option more – investing your money.

There’s a ton of ways for young Australians to invest their cash. You can consider anything from parking your cash in a savings account or term deposit account, to riskier options like equities and cryptocurrencies.

If you’re living comfortably and not too concerned with any outstanding debts, investing your spare cash might be a good option to look into. Tip: do extensive research and consult with a financial expert before investing to avoid flushing your hard-earned cash down the drain.

But, at the end of the day, it's entirely your decision how you decide to manage your money. All these options could be considered good financial moves, it just depends on your circumstances. Take the time to consider which option is best for you.

 This is general information only and does not take into account your personal circumstances. Before acquiring any financial product, you should check if it is suitable for your needs and where appropriate seek independent advice.