Aussie with $60,000 HECS debt reveals why he isn’t paying it off: ‘Opportunity’
How did your country report this? Share your view in the comments.
Diverging Reports Breakdown
Aussie with $60,000 HECS debt reveals why he isn’t paying it off faster with extra payments: ‘Opportunity’
Noah Capozza decided to divert his extra money into a share portfolio rather than pay down his HECS. The Link Wealth financial advisor told Yahoo Finance investing your cash can leave you better off. The average rate of return on the share market, which, over the last 100 years, is 9 per cent year-on-year. Victoria University found that the average amount of time it takes to pay off a H ECS debt is 9.9 years. If you put $500 per month on top of your employer’s contributions, that loan would be paid off in a little more than 28 months or two and a third years.
Australians with HECS debts are being urged to reconsider putting extra money towards their student loans. While it might make sense to chuck extra cash at your HECS to pay it off sooner, you could be in a much better position if you put your money elsewhere.
That’s what Noah Capozza has done with his $60,000 loan. The Link Wealth financial advisor told Yahoo Finance investing your cash can leave you better off, as HECS debts are hit with indexation every year.
“The idea behind that is the average rate of return on the share market, which, over the last 100 years, is 9 per cent year-on-year,” he said.
RELATED
Comparatively, he said the rate of HECS indexation should be in the 2-3 per cent range.
Capozza said it could be a better idea to make your money grow rather than fight against that yearly increase in your student loans.
How long does it take to pay off your HECS debt?
The average HECS debt is $27,600, and your employer has to send a percentage of your salary towards that loan every pay cycle, which is based on how much you earn.
If you’re on the average salary of $102,742 per year, 5.5 per cent of your pay, which is roughly $5,650 per year or $470 per month, would go towards HECS.
If you put no additional money into that loan, it would take nearly 59 months, or close to five years, to pay it off.
Do you have a story? Email stew.perrie@yahooinc.com
If you put $500 per month on top of your employer’s contributions, that loan would be paid off in a little more than 28 months or two and a third years.
Those two time frames are tricky because they don’t take into account the yearly indexation that hits in June, which can increase the loan by hundreds of dollars.
In Capozza’s case, his HECS went up by $1,800 recently thanks to this year’s indexation.
Compare that with the 8-10 per cent rate of return on the share market, Capozza said it made sense to him to invest his cash rather than put it towards his student loans.
But the average rate of return and isn’t guaranteed. However, even if you put it into a high-interest savings account, which was around the 5 per cent mark, your money could be growing more than the rate of indexation.
How much money could you have if you invested it instead?
Victoria University found recently that the average amount of time it takes to pay off a HECS debt is 9.9 years.