I was at a function during the week where people spoke longingly of the days of free university education. They looked at me, pity in their eyes, and wondered aloud at the cost to younger generations of starting out life with debts ranging from $10,000 through to skyrocketing debts associated with law and medical degrees. Friends of mine get raises, only to see all of the money suddenly disappear when they start repaying their HECs.
Thinking that we will ever see the days of free higher education again might seem a bit romantic, so it’s good to have some ideas about how best to manage and reduce student debt. Certainly there is just cause for advocating for reduced costs in education, but at the same time, here are some thoughts on keeping your debt manageable.
Cost Versus Gain
I think heading off to uni to meet some people, get a start in the world and broaden horizons are all perfectly justifiable reasons to get a degree. I can’t really claim to have done much with my degree, but I met great people and expanded my worldview, so don’t regard the three years as a waste. But if you’re not sure what you want to do with your life, certainly have a think whether a university degree is really for you. Do you need it for what you want? Or would TAFE or an apprenticeship serve you just as well, without incurring the debt? Yes, research tends to point towards people with higher education degrees earning more over a lifetime, but you’re sacrificing three years in the workforce as well as incurring debt, so you want to think about whether the cost is worth the gain.
If you’ve entered into a Commonwealth Supported Place in your degree (as in, you’ll be using HECS HELP), then the Australian government will offer you a discount on your HECS should you contribute a $500 downpayment each semester. Finding a spare $500 each semester might seem as realistic as my dreams to represent Australia as a gymnast (as in, never in a million years), but it’s certainly worthwhile if you can put the money together. Discuss whether or not your parents can contribute that money, even as a loan, in order to earn the discount and save on interest.
Look At Clearing It Early
A HELP debt is probably the lowest-interest loan you’ll ever borrow. That said, a loan is a loan and interest can weigh you down, no matter how reasonable it is. Certainly it depends on how your finances are looking and where the money can be best spent, but if you’ve got some extra money coming your way, it’s worth discussing with a financial advisor how best it can be invested, including clearing your HELP debts as an option.
Save The Raise
Once you’re getting close to the HELP threshold (which this year stands at $47,196), it can be a good idea to save any pay raises you get, in order to prepare for when you cross the threshold and HECS starts coming out of your paycheck. This way, you’ll have a little bit extra to contribute to repayments when you cross the threshold, and won’t suffer financially with the extra money out of your income. You can also chose to repay your HECS HELP out of your tax refund, but that carries with it the risk that your refund won’t cover the repayment and you’ll be left out of pocket at the end of the financial year.