HECS Debt: Should You Pay It Off Early or Let It Ride?
Millions of Australians are carrying HECS-HELP debt. Balances vary widely — from a few thousand dollars to tens of thousands depending on the course and when you studied. For many, the question is: should you throw extra money at it, or let it slowly repay through the tax system?
The answer isn't straightforward — it depends on indexation, your income, your goals, and whether you're trying to buy property.
How HECS repayment works
HECS-HELP debt doesn't work like a normal loan. There's no monthly repayment schedule. Instead:
- Once your income exceeds the minimum threshold ($67,000 in 2025–26), compulsory repayments are automatically deducted through the tax system
- Repayment rates increase with income (from 15% to 22% under the 2025–26 schedule below)
- The debt is indexed to CPI on 1 June each year
Use our HECS Repayment Calculator to see exactly how much you're repaying at your income level and how long it'll take to clear.
The 2025–26 repayment rates
| Repayment Income | Repayment Rate | Annual repayment at threshold |
|---|---|---|
| Up to $67,000 | Nil | $0 |
| $67,001 – $78,000 | 15% | $10,050–$11,700/yr |
| $78,001 – $90,000 | 16% | $12,480–$14,400/yr |
| $90,001 – $103,000 | 17% | $15,300–$17,510/yr |
| $103,001 – $117,000 | 18% | $18,540–$21,060/yr |
| $117,001 – $131,000 | 19% | $22,230–$24,890/yr |
| $131,001 – $145,000 | 20% | $26,200–$29,000/yr |
| $145,001 – $160,000 | 21% | $30,450–$33,600/yr |
| $160,001+ | 22% | $35,200+/yr |
The indexation problem
HECS is often described as "interest-free." That's technically true — there's no interest rate. But the balance is indexed to CPI on 1 June each year.
Recent indexation rates:
- 2023-24: 7.1% — the highest in decades, driven by inflation
- 2024-25: 4.7%
- Average over last 10 years: ~2.5–3%
In 2023, someone with $30,000 of HECS debt had $2,130 added to their balance from indexation alone — even if they were repaying. High inflation years make HECS debt grow faster than it's repaid on lower incomes.
Should you pay it off voluntarily?
This is the core question. Here's how to think about it:
The case FOR paying it off early
- Improves borrowing capacity. Banks factor HECS repayments into serviceability calculations. Under the 2025–26 thresholds, an $80,000 income sits in the 16% band, which is a large annual deduction. If you're buying property soon, eliminating HECS now can materially increase what a lender will let you borrow.
- Certainty over uncertainty. You know the repayment rate exactly. Future investment returns are not guaranteed.
- When indexation is very high. In 2023, HECS indexed at 7.1%. Beating that return would have required a good investment year. When CPI is elevated, the "free money" argument weakens.
- Psychological benefit. Many people simply feel better with one less debt hanging over them.
The case AGAINST paying it off early
- Low average cost. Historically, HECS has been indexed at 2–3% (CPI). A diversified share portfolio has averaged 7–10% returns over the long run. Putting $20,000 into super or index funds rather than HECS repayment will typically win over a 10-20 year horizon.
- It's repaid automatically anyway. If you're earning above the threshold, HECS is already being paid down through the tax system. You're not actually choosing between HECS and nothing.
- No interest rate risk. Unlike a mortgage at 6.2%, CPI-indexed debt is predictable and relatively benign in most years.
- Tax-free investing option. Super concessional contributions up to $30,000/year are taxed at 15% rather than your marginal rate. That tax saving can exceed the benefit of paying off HECS early.
The numbers: pay off HECS vs invest the difference
Scenario: $25,000 HECS balance. You have $10,000 spare. Should you make a voluntary repayment or invest it?
Option A: Pay $10,000 off HECS
- Balance reduced to $15,000
- Annual indexation saved (at 3%): $300/year
- Loan clears ~2-3 years earlier
- Borrowing capacity likely improves by ~$25,000–$35,000
Option B: Invest $10,000 (share market)
- At 8% average annual return over 10 years: ~$21,589
- HECS remains, indexed at 3% for 10 years: $25,000 becomes ~$33,598
- Net wealth difference after 10 years: investment ($21,589) − extra HECS indexation (~$8,598) = +$12,991 ahead
Mathematically, investing wins in most scenarios — unless you're planning to buy property in the next 2-3 years.
The property buyer's exception
If you're buying a home in the next 1–3 years and are close to your borrowing capacity limit, paying off HECS can directly increase what you can borrow. This is one scenario where voluntary HECS repayment has clear, immediate value.
Use our Borrowing Capacity Calculator to model the difference with and without HECS repayments factored in.
Frequently asked questions
Should I pay off my HECS debt voluntarily?
It depends on your situation. HECS debt is indexed to CPI (not a true interest rate), so the real cost is inflation. If you could earn more than CPI by investing (historically likely over the long term), investing wins mathematically. However, HECS reduces your borrowing capacity for home loans.
What is HECS indexation and how does it work?
HECS-HELP debt is indexed to CPI on 1 June each year. In 2023-24 the indexation rate was 7.1%. In 2024-25 it was 4.7%. This is not interest, but it does increase your debt balance if you don't repay fast enough.
Does HECS debt affect my borrowing capacity?
Yes. Banks factor in your compulsory HECS repayment as a monthly obligation. Under the 2025–26 thresholds, once your income is above $67,000 the required repayment can be large enough to materially reduce your borrowing capacity.
When does my HECS debt get wiped?
HECS-HELP debt is only wiped upon death. There is no automatic forgiveness after a certain number of years. You repay through the tax system automatically once your income exceeds $67,000 under the 2025–26 thresholds.
Use our HECS Repayment Calculator to see how long it'll take to clear at your income level.