Deciding whether to pay off your HECS-HELP debt early or invest that money elsewhere is a common dilemma for Australian graduates. With the 2025 indexation rate at 4%, understanding the pros and cons of each approach is crucial. At FMS Group, we help clients assess their financial position and make informed decisions that align with their long-term goals.
Understanding HECS-HELP Debt
HECS-HELP loans help students cover university tuition fees. These loans don’t accrue interest, but they are indexed annually in line with the cost of living. From 1 June 2025, the indexation rate will be 4%, meaning your HECS-HELP balance increases by this percentage each year.
While HECS-HELP is a relatively low-cost debt compared to home loans, personal loans, or credit cards, deciding whether to pay it off early or invest instead depends on your financial goals, risk tolerance, and life stage.
At FMS Group, we guide clients through these decisions, ensuring their strategy aligns with both short- and long-term financial objectives.
Pros & Cons of Early HECS-HELP Debt Repayment
The decision to pay off your HECS-HELP debt early is not straightforward and requires careful consideration of various factors. On one hand, early repayment can provide financial benefits and peace of mind. It reduces your overall debt burden, potentially improves your borrowing capacity, and eliminates the impact of annual indexation on your balance. On the other hand, HECS-HELP is considered ‘good debt’ due to its relatively low indexation rate and income-contingent repayment structure. The money used for early repayment could potentially yield higher returns if invested elsewhere, especially over the long term.
Let’s explore these pros and cons in more detail.
Pros:
- Reduce Future Debt: Making voluntary repayments reduces the balance subject to indexation, saving you money in the long run.
- Improve Borrowing Power: Banks consider HECS-HELP debt when assessing home loan applications. Paying it off early could increase your borrowing capacity.
- Peace of Mind: For some, clearing debt provides a sense of financial security and reduces stress.
Cons:
- Low Indexation Compared to Other Debts: At 4%, HECS-HELP debt is relatively low-cost compared to home loans or credit card debt, which may have much higher interest rates.
- Opportunity Cost: If you invest instead of paying off HECS-HELP, your money has the potential to grow. The Australian share market has historically returned 7–10% per year, meaning your investments could outperform the 4% indexation rate. (Note: past performance doesn’t guarantee future results.)
- Reduced Liquidity: Once you make a HECS-HELP payment, you can’t get that money back. If financial flexibility is important to you, investing or saving in an accessible account might be a better option.
Investing Instead of Early Repayment
For those considering investing instead of repaying HECS-HELP, the decision often comes down to expected returns vs. indexation. If your investments generate higher returns than the 4% HECS-HELP indexation, investing might be the better option.
Some common investment options include:
- Superannuation contributions (which benefit from tax advantages and employer co-contributions)
- Shares and ETFs (which historically offer higher long-term returns)
- Property (which, while requiring more capital, can provide long-term growth and rental income)
At FMS Group, we help clients assess risk, diversify investments, and develop tailored strategies to ensure their money is working as efficiently as possible.
Tax Implications and Investment Alternatives
When weighing up your options, it’s important to consider the tax implications of your decision. Unlike in previous years, there is no longer a bonus for making voluntary HECS-HELP repayments. This means that from a tax perspective, there’s no direct advantage to paying off your debt early.
However, there are tax-effective investment alternatives worth considering:
Superannuation Contributions
Given the importance of superannuation in Australia’s retirement system, making additional contributions to your super fund can be an attractive option. These contributions can be made either pre-tax (salary sacrifice) or post-tax, potentially offering significant tax advantages:
- Pre-tax contributions are taxed at 15% when they enter your super fund, which is likely lower than your marginal tax rate.
- Post-tax contributions allow you to contribute money you’ve already paid tax on, potentially making you eligible for government co-contributions.
Over the long term, the power of compound interest within the superannuation environment can significantly boost your retirement savings.
First Home Super Saver Scheme
For graduates who are also aspiring first-home buyers, the First Home Super Saver Scheme (FHSSS) offers an interesting alternative. This scheme allows you to save money inside your superannuation fund to put towards a home deposit.
Key benefits include:
- Tax advantages: Contributions and earnings are taxed at the concessional super rate.
- Potential higher returns: Super funds often achieve better returns than standard savings accounts.
- Forced savings: Money in super is generally inaccessible until you’re ready to buy, helping you stay on track with your savings goal.
The FHSSS can be an attractive option for those who want to balance paying off their HECS-HELP debt with saving for their first home.
Which Option is Right for You?
The right decision depends on your personal circumstances, including:
- Age and Life Stage – Younger individuals may benefit more from investing and allowing compound interest to grow their wealth, while those approaching major financial milestones (like buying a home) may want to clear debts to improve borrowing capacity, and business owners may need to consider how HECS-HELP repayments impact their cash flow, tax obligations, and borrowing capacity.
- Risk Tolerance – If you prefer financial certainty, paying off HECS-HELP early might provide peace of mind. If you’re comfortable with risk, investing could yield higher long-term benefits.
- Broader Financial Goals – Supercharging your retirement savings, investing in property, or saving for a big purchase might be a higher priority than clearing a low-cost debt.
History of the HECS-HELP Debt
The Higher Education Contribution Scheme (HECS), introduced in 1989 by the Hawke Labor Government, marked a significant shift in Australian tertiary education funding. Prior to HECS, university education was free. HECS required students to contribute to the cost of their education, with an initial flat fee of $1,800 per annum.
In 2005, HECS was restructured into the Higher Education Loan Program (HELP), encompassing various loan schemes, including HECS-HELP for Commonwealth-supported students. This program allows students to defer their tuition fees until their income reaches a certain threshold, at which point repayments commence through the tax system.
Recent Policy Changes
Initially, HECS debts were indexed to the Consumer Price Index (CPI) to maintain their real value over time. However, in response to concerns about rising debt levels, the Australian Government announced in the May 2024 Budget that, effective from 1 June 2023, HELP debts would be indexed to the lower of the CPI or the Wage Price Index (WPI). This change aims to reduce the financial burden on graduates by aligning debt growth more closely with wage increases.
In November 2024, Prime Minister Anthony Albanese announced an increase in the HELP repayment threshold. From 1 July 2025, graduates won’t begin making compulsory repayments until they earn at least $67,000, up from the previous threshold of around $54,000. This change will offer extra breathing room for lower-income earners and is designed to reflect wage growth across the country.
Additionally, the government implemented a one-time reduction in HELP debts from 1 June 2025, effectively wiping out $3 billion in student debt. This measure benefited over three million Australians, with an average debt reduction of approximately $1,200 per person.
These reforms reflect ongoing efforts to balance the sustainability of higher education funding with the financial wellbeing of graduates.
Get Expert Guidance with FMS Group
There is no one-size-fits-all approach when it comes to HECS-HELP repayments vs. investing. At FMS Group, we take the time to understand your goals, assess your financial situation, and create a tailored strategy that maximises your financial potential.
If you’re unsure about the best option for you, speak to one of our financial advisors today. We’ll help you navigate the numbers and make a decision that works for your unique financial future.
Disclaimer: This information is general in nature and does not constitute personal financial advice. Please consult a financial professional before making any decisions regarding your HECS-HELP debt or investment strategies.