Pay off university debts faster and save money by making voluntary repayments

PAY back your study debts faster and you could make some significant savings and feel like you’ve gained an instant pay rise.

Female University Student with Books and Laptop on Campus

PAYING back study debts can take some people years and at times feels like there’s no end in sight.

But if you, or your children, are tired of having your wages garnished every month by the tax man it may be worth considering repaying the debt early.

The average Higher Education Loan Repayment amount in Australia is $16,900 and the amount deducted from your wage each week depends on how much you earn.

From July 1, students both past and present who earn more than $54,126 will have to repay their debts at a rate of between 4 per cent and 8 per cent of their income a year — quite a hit to anyone’s back pocket.

So is it worth trying to pay it off faster?

AMP financial adviser Andrew Heaven says “it depends”.

“HELP debts are very generously funded and there are no interest costs on the debt other than it is linked to inflation each year,’’ he says.

“If you have credit card debt or unsecured loans and are drowning with those interest costs you would be far better off focusing on paying that money back.

“But if you have good cash flow and are looking to reduce the amount of outflows and want to start the new financial afresh, by all means pay extra off.”

Amanda Elgammal paid some of her university debt off in advance but is now paying it off gradually.

The Federal Government indexes the debt amount based on the Consumer Price Index on June 1 each year — the current inflation rate is a relatively low 1.2 per cent.

If you have a debt and make a voluntary repayment of $500 or more you will receive a five per cent bonus applied to the total. So for every $500 you repay, $525 will actually come off your debt.

Your HELP debt balance will appear on your notice of assessment once you’ve filed your tax return.

But a Federal Government department of education and training’s spokesman says they will now also be cracking down on Aussies who live overseas and are not paying back their debt.

“The Government announced that it will introduce measures to recover HELP debts from Australians living overseas,’’ he says.

But if you are fortunate enough to be able to pay off your remaining debt amount ahead of June 30 you can start the new financial year with an instant payrise because repayments will no longer be taken from your salary.