OK, you have just graduated from University after four hard years! What do you get at the end of it? Unless you are very lucky, as well as a degree, you will accumulate quite a large debt, courtesy of the Australian Government.This is now known as Higher Education Loan Programme (HELP). When I graduated from RMIT, it was known as Higher Education Contribution Scheme (HECS). I guess many of today's graduates are in no doubt that the money is a loan and is to be repaid!
When I graduated from RMIT, I was lucky and HECS only kicked in at the second of my four year engineering degree. So I only had 3 years worth of HECS fees to repay. In those days, my debt was in the region of $7,500, which is quite a sizable chunk of money. These days, I have heard of a HELP debt of $20,000 or more for an engineering course.
So what can you do to reduce that debt. Here are some tips.
- Repay some of the debt on a voluntary basis. The ATO has a good explanation. Essentially, you get a 10% discount of the repayment that you made. So the more you repay, the bigger the discount.
- Get your employee to contribute to the debt. If you are an excellent graduate and many companies are chasing after your skills, you may be able to negotiate it as part of your salary package, such as salary sacrificing. The ATO also has a note on this. Salary sacrificing also reduces your taxable income.
- Pay it off as fast as possible. Your HELP debt will be subject to CPI, so every year of outstanding debt, it will increased according to inflation. For the year 2007, it was indexed by 3.4%.
However, if you study hard and start your career with a solid groundings, that is what you should be aiming for. Repaying the debt will be well within your reach.
Around the net, I also found some other items that may help you save some money as well.
- How to save money while in college - This has a on-link to 118 Ways to Save Money in College. As some of the comments, some of these tips are rather suspect.
- Uni of QLD has a few tips.
4 comments:
I don't think that it is that important do pay your HELP debt off as soon as possible. Since it only increases with inflation, you might be better investing the money rather than paying it off.
I agree, don't pay it off unless you have to as it is indexed to inflation you are far better off investing, or simply putting it in an interest bearing bank account that will out grow inflation, than paying it off.
A few years back I was considering paying back my HECS. It's pretty hefty, with a Bachelor Degree and then Masters. I had about $20k that I could have paid to it straight away, and then could have saved enough to pay the rest off over a few years.
After running many, many, numbers and setting up all sorts of scenarios in Excel spreadsheets with someone who knew far more about money than me, it turned out that paying it all off and not just paying off the compulsory element would leave me either better or worse off. Admittedly now, with hindsight I'm pretty sure I'm better off for not having paid it off, as I've probably made more on my money than my HECS debt has increased.
Good comments. I must admit I didn't do any voluntary repayments towards my HECS, firstly I wasn't in a financial position to do, Secondly, I felt that I was better off investing any spare money that I have in other assets.
However, at the end of the day, my HECS is still a debt and getting rid of it as early as practically possible is still a good idea. This could mean just paying via the compulsory repayments.
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