I mean, indexation looks bad because its calculated once. But 7% once is way better than 5% compounded.
I do agree high school and societal messaging has been misleading. "Good debt", " When I studied it was free, is it not free anymore?"
this post was submitted on 21 Jul 2023
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You're at bit late at preemptively paying it off to avoid the 7%. Wait until the next rate is released (~March 2024) and then decide.
I don't understand this point. Why would I wait for next years rate, won't it add on to this year's 7% when it goes into effect?
The rate is announced before it's applied. You just need to make a volentary payment before June 1 next year.
The way HECS is indexed is based on inflation rates. They announce the amount it will be indexed in early May (though you’ll be able to find out pretty accurate estimates as far back as March), and then apply it on 1st June. As long as you make whatever payment you want to make before 1st June (try to aim for no later than about 20th–22nd May, to make sure the transaction goes through in time) it makes literally no difference when you do it. Pay extra today or pay it on 15th May 2024, it’ll have the same effect. Except that if you pay it today, you’ve lost that money and it’s no longer earning interest for you in the meantime.
Amazing, you explained it perfectly. Thank you
It’s not interest it’s indexation. It’s tied to inflation. If you knew about it then it was easy to see coming, but obviously if you didn’t then you didn’t.
It is possible to index negatively and reduce the balance but pretty unlikely with todays economy.
It’s applied once per year at the start of June so any voluntary repayments are best made before the last week of May. The repayments you make through the year as wage deductions aren’t put against your balance until after you do your tax return.
Thanks yeah, I haven't been in Aus in many many years, so haven't been following it. Do they release next years rate before it goes into effect? Like, would it be best to wait to see if the ~7% goes down and therefore it is better to pay back if it's predicted to go down the following year? Or does each year compound and can only go up in what I'll owe? And yes, I really don't understand how these things work very well.
Each year it compounds. They announce it in March and apply it in June.
So you have balance +7% now Next year you will have balance +7% - any payments taken from your tax return this year + new rate
Hope that makes sense.
I had a debt for over ten years and do remember seeing it index down near the start of it so it is possible, but very improbable.
Thank you!