Should You Pay Off HECS Early?
A balanced analysis to help you decide whether voluntary repayments make sense for you.
Updated: July 2025 · Based on ATO legislation
The key question
HECS-HELP is essentially an inflation-linked, interest-free loan. The only "cost" of holding the debt is annual indexation (typically 2-4%). This makes it one of the cheapest debts you'll ever have.
The decision comes down to: can you earn more by investing that money than you'd save by avoiding indexation?
When paying off early makes sense
✅ You're risk-averse
If you'd keep the money in a savings account earning 3-4%, you'd roughly break even with indexation. Paying off HECS gives you a guaranteed 'return' equal to the indexation rate.
✅ You're about to go overseas
While overseas, your debt still gets indexed but you may not be making compulsory repayments (depending on your tax situation). Paying down before leaving reduces the indexation base.
✅ You want borrowing power
Lenders factor HECS repayments into your serviceability. Paying it off can increase your borrowing capacity for a home loan by $30,000-$60,000+.
✅ Psychological benefit
Some people value being debt-free. If eliminating HECS gives you peace of mind, that has real value — even if the numbers don't strictly favour it.
When keeping the debt is smarter
❌ You can invest at higher returns
If you invest in diversified index funds averaging 7-10% long-term, you'll likely come out ahead vs the 3-4% indexation rate. Over 10 years, the gap compounds significantly.
❌ You have higher-interest debt
Credit cards (15-20%), personal loans (7-12%), and even some car loans cost far more than HECS indexation. Pay those off first.
❌ You don't have an emergency fund
HECS repayments are automatically paused if your income drops. That money in savings provides a safety net that HECS can't claw back.
❌ You're saving for a deposit
Getting into the property market sooner (especially with rising prices) often beats the indexation savings from paying off HECS early.
If you're saving for a home, don't forget the upfront costs beyond the deposit — use the stamp duty calculator to understand the full cost of buying.
Worked example
Scenario: $10,000 lump sum, $30,000 HECS debt
Option A: Pay off HECS
Debt drops to $20,000. You save ~$3,500 in indexation over the loan's life and pay it off ~2 years sooner.
Option B: Invest at 7%
After 10 years your $10,000 grows to ~$19,672. Net gain: ~$9,672 — nearly triple the indexation savings.
The bottom line
For most people under 35 with a long investment horizon, keeping the HECS debt and investing elsewhere is mathematically optimal. But personal circumstances — risk tolerance, other debts, life plans — matter just as much as the numbers.
To understand your full tax position before deciding, calculate your total tax position including income tax, Medicare, and HECS repayments.