I am expecting to start university next year and was wondering whether I should pay my HELP debt up-front or defer it. What are the pros and cons?
Paying your Higher Education Loan Program (HELP) bill up-front can make good financial sense if you have the cash available and no other debts.
This is because you get a discount of 10% which is not available if you make voluntary payments later on, or you are required to make payments through the tax system when your income is above a certain threshold.
However, making up-front payments wouldn’t make financial sense if you have other debts or would need to borrow money.
When you accrue a HELP debt, the Government doesn’t charge you any interest, but they do increase your debt in line with inflation each year, which is currently around 3%.
So if you don’t have the cash to make up-front HELP payments, you may be better off deferring the debt where the cost to you is effectively 3% per annum rather than borrowing at commercial interest rates of between 6.5% and 20% per annum.
For a complete list of Higher Education reform measures announced in the 2014-15 Budget please click here.
We hope that helps you make the right decision and enjoy your studies and please contact us to speak to one of our financial planners if you feel we can assist you to maximise your opportunities.
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