Agree that it is correct to tell the ATO you have a HELP debt when you complete your TFN declaration form (when you get a new job).

I more meant for people who had an existing job (say through high school) who had already completed the TFN declaration form. But I agree that the correct thing to do is to advise your employer (who might start taking extra tax out).

Yes – I was aware the voluntary repayment has dropped to 5% – just hadn’t had time to write about it!!
Cheers
Scott

Thanks for the article BTW.

And FYI the 10% bonus drops to 5% after 1 January 2012.

Appreciate your comment. Congratulations on being HECS-HELP free!

Looks like you have used the “last year payment” strategy I mention in the article to get the benefit for your last 2 years paying HECS-HELP.

Paying approx 17k to cancel a $19k debt (saving 1.8k) is a good investment. Instant 10% return on investment. (I disagree with saying the amount saved 1.8k vs amount you’d have to pay next year 10k means its a 20% return on investment – you paid as 1 lump sum: 8,100 instead of 9,000 this year (10% ROI) and 9,000 instead of 10,000 next year (10% ROI)).

Definitely agree with your comment re: trade off between different investments.
I thought I’d unpack that a bit more…

1.You would almost definitely be ahead of keeping it the bank at 6% (although not AMAZINGLY better off, say $750 on your numbers as a complete guess)

But I’m just playing devils advocate –
2. if you just paid the compulsory $9,000 when you lodged your tax return this year (maybe your employer withheld this?) and kept the $17,000 (or $8,000) and bought a unit worth $170k (maybe your parents lend you some deposit money or you got 5% loan 3 years ago when they still offered them) that rose to $210k after 5 years – you’d be better off with the house.

Or (probably more commonly)
3. go to Europe next year and spend 12k on your credit card -and it takes you 5 months to pay it back – you might have been better NOT paying the HELP.

But of course paying off your HECS (or any loan) is a fantastic feeling.

Scott

My outstanding debt was approx $19k but the payout amount was approx 17k.
I calculated that this financial year my compulsoray repayments are about 9k, so my “real outstanding balance” is about $10k which would likely be paid off next financial year anyway through compulsorary repayments.

In my case If I paid off my loan I would save approx 10% on the whole amount (1.8k) which when you compare to the amount I would be forced to pay in the next year provides an approx 20% pa after tax return on investment. I also avoid indexation which I have not accounted for in this calculation.

Whether it is woth paying off or not really is a trade off between alternative investment options and the effective return on investment from paying off the debt through voluntary repayments. A good thing to remember though is that the bonus from paying off the debt is a “risk free” return and also an “after tax return”.

Thanks -yeah the 20% upfront discount generally comes when you have no money (I don’t think anybody ever said uni full time and working was easy!).

And the 10% discount (only when you pay $500 or more) means that if you actually had $500 – there are probably better things you could be using the money for (saving for a house, or to start investing).

Scott