I have a considerable amount in student loans by Australian standards. I have multiple degrees and they allowed me to get a job that pays well. With such a job, the Australian government requires me to start paying them back.

Right now, HECS-HELP loans are indexed at 1.9% per year.

The required repayment rates are set as between 4 and 8% of pre-tax income.

If I really cinched my belt, I could pay them off in 2 years. If I only pay the required amount, it would take around 10 years.

These 1.9% indexed rates are really low. It isn't hard to find a high interest savings account that pays above 2% though that will be 2% of a much smaller amount of savings vs the 1.9% of my student loans. So less absolute money.

As I save the money toward paying my compulsory minimum payment each year, it will go into such a high interest account.

When I make the annual repayment, should I withdraw the minimum amount or should I take out as much as I can afford?

  • Do they still have the 5% discount for top up payments?
    – tl8
    Commented Sep 26, 2018 at 5:57
  • @tl8 I googled for that and couldn't find anything except a statement that previous benefits for voluntary contributions were ended July 1 2017
    – coagmano
    Commented Sep 26, 2018 at 6:41
  • 1
    indeed, there is no longer at 5% discount for early repayments. Commented Sep 26, 2018 at 7:46
  • That is a bummer. I managed to pay mine off before they changed it from 10% to 5%
    – tl8
    Commented Sep 26, 2018 at 12:01
  • At one extreme, you can pay off the loan in 2 years; at the other, in 10 years. What is the actual difference in your overall performance for the two, compared to a more middle-ground approach of paying it off in, say, 5 or 6 years? Are we talking about thousands of dollars, or just a couple of hundred?
    – chepner
    Commented Sep 26, 2018 at 14:06

4 Answers 4


HECS is the cheapest loan you will get in your life.

You are almost always better off not paying it off, as you could invest that money elsewhere with a higher return. The loan amount doesn't affect your ability to access further credit as another answer has speculated. And the rate is guaranteed to stay low.

For instance, there are several options for savings accounts that return ~3%, which would cover the "loss" in interest of not paying the HECS down, with 1.1% extra earning for you to enjoy.

Realistically, any other investment will return more than that (in both growth and interest/dividends) and there's a very low risk that it will return less than the HECS interest rate.

There used to be a reason to pay back early, the government would give you a discount on the loan for paying back early. But that program was ended in 2017...


These 1.9% indexed rates are really low. It isn't hard to find a high interest >savings account that pays above 2% though that will be 2% of a much smaller >amount of savings vs the 1.9% of my student loans. So less absolute money.

But you would invest as much, as you would pay back ... If you pay back more money, then you need if would be comparable to an investment with 1,9% interest. So when you invest it with 2+% interest, and keep this money to pay back your student loan in the future you are reducing it by an higher amount then paying it back directly.

The only reason to pay it back directly is maybe the opportunity to get new credit, i don't have clues how a student credit impact your rating even when you have a filled bank account too.


I would take advantage of the low interest rates to pay off as much debt as possible right now. Your money will never be as effective in paying down debt as it will be right now. When interest rates are low the majority of your money will be going to pay down principal, not interest.

You don't have to pay off the full amount in two years but remember the golden rule of interest. The longer you take to pay the loan, the more you will pay in interest on it.

You should make more than the minimum but you don't have to max out your payment either. 0.1% interest on your money is not worth the hassle. You should have some money set aside for emergency situations, and some responsible discretionary spending. There isn't much wrong with paying off your debt in 3-4 years. 10 years is a different story.

  • The interest rates will stay low. It is linked directly to consumer price index, though there has been talk of changing it to be linked to the government bond rate. Does that effect your answer? Commented Sep 26, 2018 at 0:30
  • So you are saying the interest rate on your loan is fixed? If your interest is fixed in at a low rate then that is great, I would still work to pay it off in 3-4 years. If it is variable and there is potential the rate would go higher you would save more money by paying it off faster.
    – user75979
    Commented Sep 26, 2018 at 2:36
  • 1
    Just to be clear, it is fixed to the CPI, so in real terms it is not variable at all, vs the real value of money. The risk the government will pass a bill to change that exists and is a concern. Commented Sep 26, 2018 at 7:48
  • If that is the case then I would still aim to get rid of it within 3-4 years. When you say clench your belt I imagine living absolute bare bones. It is admirable to try that but, in reality you will just end up miserable for those 2 years. It would be better to take an extra year and spend some money on yourself once and a while, have some money going to the side to invest, emergency fund etc.
    – user75979
    Commented Sep 26, 2018 at 19:28

Unfortunately the "loan mathematics" is in many cases a misguidance or a misdirection.

Obviously as an exercise in arithmetic, if you can achieve a higher return elsewise by 0.0001%, then that option is "better" (ie in theory you'll have a tiny number of extra dollars after the years in question).


That is all a non-issue. The amounts involved are trivial either way.

The only key factor is - are you part of credit-addiction society?

A ubiquitous, normal, widespread problem in our era is, in a word, "debt problems".

Huge numbers of folks get in to credit card debt hell, student loan debt hell, car loan debt hell, mortgage debt hell.

(As a socio-political matter, many sensible people believe this is actively due to and explicitly caused by the policies of the government-banking complex - IMO they're right.)

Note that you say ..

"If I really cinched my belt..."

It's worth considering that ... people from our grandparent's generation wouldn't even understand that concept. So, clinching your belt "as opposed to what"? The fact is you're in a massive amount of debt, not based on an asset - anything could happen good or bad with your new career, the economy, etc. Sure, work your guts out, spend zero, and pay it off ASAP.

Thus, in answer to your specific question,

"When I make the annual repayment, should I withdraw the minimum amount or should I take out as much as I can afford?"

A) first, realize that there is an overwhelming need to sensibly pay off deadweight debt - at all times and in all circumstances

B) do the calculation and see how much actual money you're talking about either way via the "scheme" of "investing elsewhere, etc". In fact: is it just a trivial amount of money which does not outweigh the overwhelming need to sensibly pay off debt? If so, totally forget the idea. Get the debt paid off.

Bearing in mind that vast numbers of people today get in to debt problems, you have to carefully ask yourself if that is an issue for you. You're soon going to be exposed to the total nonsense of car loans, and high-limit credit cards. I for example suffer tremendous addiction problems which run in the family; so back when starting out I sensibly realized I'd be a prime candidate to fall in to "debt hell". Thus I took and do take active steps via my accountants etc to ensure that can never happen. You might say "Hah hah, of course I'll never run up credit card debt or a lame car loan" but is it worth the risk (again, the calculation in question is a trivial dollar amount either way), when "of course" you should just pay off this deadweight debt as soon as possible?

(I think it's well worth remembering that in our era folks ubiquitously totally confuse deadweight debt, as under discussion here, with actual business debt on equipment. So, if I have a crane or something that costs X a year to service the debt and it generates Y a year in company income, that's an actual calculation on whether a debt is worthwhile. But you're talking about a pure deadweight debt, as if you bought a Porsche or lost money at a casino. Pure deadweight.)

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