HECS is ‘good debt’ but remains a burden for young people trying to get a home loan, says Scott Pape

HECS is ‘good debt’, Barefoot Investor tells a mother who paid off her struggling son’s $85,000 bill because he was unable to find a well-paying job or save for a house.

Scott Pape is the Barefoot Investor. Picture: Jason Edwards

The nightly news is a no go zone in our home.

There’s too much blood and guts (and autocue).

However, Wednesday was a historic night, so after the kids were in their jim jams, we allowed them (and their teddy bears) to watch a few minutes of the news.

Big mistake.

The first thing they showed was a highlight reel of the US election campaign.

“Dad, why did he get shot?”

‘Well … America is a complicated place’.

“Do people really eat cats and dogs?”

‘No they don’t’.

“What is he doing to that microphone?”

‘Alright kids, it’s BEDTIME!’

The nightly news is usually a no-go zone in the Barefoot household.

Truth-be-told the only news our kids watch is the ABC’s Behind The News (BTN) – a national treasure – and Landline, which gives them an understanding of how the food makes it onto their plate each night.

Yet when I’ve tucked the kids safely in bed, here’s a couple of shows that I’ve been watching lately:

Bitconned

Netflix

This documentary follows a 22 year old kid who set up his own crypto coin to get rich quick.

The opening line gets to the guts of it:

“We lied, we cheated, we made millions of dollars. And now I’m facing over 100 years in prison.”

There’s a lot of bro-ness: Lambos, drugs, and wads of cash being thrown around. Yet what makes this doco so revolting (and compelling) is that it is not framed as the typical ‘road to redemption’ story, where the lead character works out that stealing hundreds of millions of dollars is bad.

I won’t spoil it for you, but there’s a twist at the very end that will leave you shaking your head.

What’s Next? The Future with Bill Gates

Netflix

Gates teams up with film maker James Cameron – who created the Terminator – to investigate both the opportunities and threats of Artificial Intelligence (AI).

Look, there’s way too much hype and bulldust around AI.

And that’s kind of what I liked about Gates’ approach, it’s a nerd’s view of the technology. He explains how it works, with the help of Cameron (who jokes about how writing sci-fi is getting tricky when reality keeps catching up), and none other than the founders of ChatGPT.

This short episode gives you a good overview of where AI is at the moment (the doco was released in late September), and points to where one of the richest men in the world thinks it will head.

Oh, and this is just one of five in the series. If you have time you should also watch his episode titled ‘Misinformation’. Bill looks at the spread of false information on the web, and the threat that has to democracy …

Tread your own path!

Is HECS Still a Good Debt?

Scott,

My son has two degrees but hasn’t found work in his field. He is employed full-time but doesn’t earn enough to pay off his $85K HECS debt. It feels like a noose around his neck, and at 33, he’s convinced he’ll never own a home because of it. His self-esteem is plummeting, and as a parent, I’ve decided to pay it off. Schools push kids to go to uni, but now he wishes he had done a trade like his brothers. I just want young people to know — don’t be fooled by “interest-free” HECS. It adds up every year with inflation!

Megs

HECS is yet another piece of lead in the saddlebags of young people trying to buy their first home, says Scott Pape.

Hi Megs,

Well done for being in the financial position to come to your son’s emotional rescue. Sadly, I think buying a home now depends on the Bank of Mum and Dad. Yet for the kind of people Paul Kelly sings about (‘they got married early, never had no money’), well, I think they’ve really hit the skids.

Anyway, do I think HECS is still a good debt?

Yes I do.

Look, the reason most people choose to go to university is so they can eventually get a well paying job.

Sure, it’s not as fair as, say, when Albo went to uni, he got to study being a student politician for free. However there is no interest charged on the loan, no repayment deadline (and it’s written off when you die), and the repayments only increase in line with your income.

That being said, you are 100% right: it is yet another piece of lead in the saddlebags of young people trying to buy their first home. Especially since 2022, when the government regulator changed the lending laws to require banks to take into account your HECS debt.

Here’s what that looks like:

Someone earning $80,000 a year, making HECS repayments of $3200 a year, will have their borrowing capacity reduced by $32,000, according to Flint Mortgage Group. In other words, your annual HECS repayment reduces the amount a bank will lend you by a factor of ten.

(Note: Labor’s latest election vote bribe promises to cut your HECS debt by 20%, So vote one Albo, the battler bought up in housing commission, who now lives in a clifftop mansion, and gets to sit at the pointy end of the Qantas Club).

In that regard, it may be worth paying down your HECS depending on how much you need to borrow. However, that being said, that may also mean you need to factor in Lenders Mortgage Insurance (LMI), which insures the bank, not you, and will cost thousands of dollars over the life of your loan.

Still, I think the lesson for your son is a simpler one:

Don’t spend $85,000 studying two degrees that you can’t find employment for. I mean, what the hell did he study … Middle Eastern pottery?

Your Password is a Problem

Hi Scott,

I found out about this through my work last week and I wish someone had told me sooner. It’s a government website that shows you how long it would take a hacker to crack your passwords. It’s quick and easy to use! www.nsw.gov.au/id-support-nsw/be-prepared/passwords

Karen

A new government tool could help you protect your password from scammers.

Hi Karen

What a cracker of a tool!

Here’s what the site told me about my password:

“Warning! It would take about 2 minutes to crack your password”.

(Even more worryingly, apparently it has been seen in two data breaches).

I love it when the government comes up with something actually useful. Thanks for the tip.

The Working Poor

Hi Scott,

I’m a single mum of two very active teenagers. I earn a decent full-time wage but I am overwhelmed by debt. Right now, I only have $50 left in my account until the next payday. Their father doesn’t contribute. There isn’t a facet of our lives which is not struggling and scary daily. I’m receiving defaults and letters of demand from debt collectors, and I’m behind on my rent. I’m committed to getting out of this situation and have even started selling items to raise the $2000 for a Mojo account. After escaping an abusive relationship and being homeless, I want more than anything to give my children a stable and worry-free existence. Can you recommend a financial advisor who can help me set up the investment accounts for the kids?

Jenny

Barefoot Investor recommends if you are suffering from financial stress that you call the National Debt Helpline.

Jenny

There are things your kids need:

A loving mum who isn’t totally stressed out and working round the clock. A warm house with food on the table. Eight hours of sleep. Part-time jobs so they can fund their active lifestyles.

A stock market trust fund is not one of them.

The way you give your kids a stable life is to get stability yourself. Research from Deakin University has found that the financial stress that you’re under feels the same to your brain as physical torture. In other words, you can’t operate like that for too long – it takes a toll on everyone.

So I want you to call the National Debt Helpline on 1800 007 007, and talk to a financial counsellor. They’ll sort out who you should pay, and who can bugger the hell off for the time being.

Jenny, I want you to know this:

I think you’re doing a great job keeping it all together. All the sacrifices you’re making, and all the hard work you’re doing, isn’t going unnoticed. Your kids are watching and absorbing everything you’re doing for them, even if they don’t tell you today. You’re making a hell of a difference, you just wait and see.

DISCLAIMER: Information and opinions provided in this column are general in nature and have been prepared for educational purposes only. Always seek personal financial advice tailored to your specific needs before making financial and investment decisions.

Ends.

Originally published as HECS is ‘good debt’ but remains a burden for young people trying to get a home loan, says Scott Pape