Sleep easy – that HECS bill is nothing to fear

Melinda is worried her daughter will never be able to pay off her student debt

QMy 29-year-old daughter has a $40,000 HECS bill, $15,000 car loan, pays $350 a week rent and is trying to save a deposit to buy a studio. Should I help her and pay the HECS like her friends’ parents did? I worry she will never be able to pay it as the interest keeps increasing and her wages are low. What is your advice, as I am losing sleep with worrying about her situation? Thank you.

Let’s try to improve your sleep, Melinda. How would you feel if you were offered an interest-free loan of $40,000 and you made no repayments until you earned around $48,500, when you started to pay 1% of your income towards it? And if it was unpaid at your death, the loan was cancelled? We’d all be lined up to get one!

Sure, HECS debt is indexed, meaning it increases in line with inflation, but the key points are no repayments are required until you earn nearly $50,000. HECS debt, as it is not a normal enforceable debt, with interest repayments, does not affect your credit rating. That is the last loan I would ever pay off.

My view is that neither your daughter nor you should worry about HECS debt – it is the best debt I have ever heard of.

If you want to help her, I’d strongly suggest you look at a couple of options. One is paying out her car loan to allow her to save more. But if I was in your shoes, I’d be looking at how you could help her buy that studio. An apartment in a good location will become a wonderful asset for your daughter and, even more importantly, a home.

My suspicion is that you would sleep better if your daughter owned a home and any assistance you wish to provide would be best used to do that.

The HECS debt is just a number with no interest and no fixed repayment term. I’d sleep like a baby with one of those!