Should You Repay Your HECS Debt?

If you’ve ever asked yourself “Should I just pay off my HECS debt early?”, you’re not alone. It’s a super common question—especially when you see that lump sum just sitting there. But here’s the thing: in most cases, you’re better off just letting it chip away every year through your tax return. That’s right—no need to rush it.

HECS is Basically an Interest-Free Loan

Let’s break it down. Your HECS-HELP debt doesn’t charge you interest like a credit card or a personal loan would. Instead, it’s indexed to inflation, which recently has been sitting at around 3%. That means your debt grows slightly each year to keep up with the cost of living, but that’s it.  So while your debt may increase a little over time, it’s not the kind of “bad debt” that needs urgent attention.

So, Why Not Just Pay It Off?

Here’s where it gets interesting. Instead of putting your hard-earned money toward paying off your HECS early, you could invest that same money into something with stronger returns—like Australian Shares via Indexed Funds. Click here to find out more on investing in indexed funds.

Historically, Australian Indexed Funds have returned around 9% per year on average over 20 years. Compare that to the 3% indexation on your HECS debt, and you’re already seeing the difference!

Basically, by investing rather than repaying HECS early, you’re: Potentially earning more than what your debt is growing. Keeping more cash in your pocket to use when you actually need it.

How is HEC’S Repaid in my Tax Return?

Each year, when you lodge your tax return, the ATO calculates how much you earned and, if you’re above the repayment threshold, takes a slice to chip away at your HECS. This either comes out of your refund or gets added to your tax payable. Click here to read our full breakdown of how HECS is repaid. Easy. Automatic. Done.

The Bottom Line

Unless you’re swimming in cash and have zero other goals (lucky you), there’s usually no strong reason to pay off your HECS debt early. Let it handle itself at tax time and use your spare money to build wealth elsewhere.