Alex didn’t want to end up in HECS debt for years, so he decided to take action. (Source: Provided/TikTok)
A young Australian has paid off a massive $43,000 in HECS debt just one year after graduating – and the annual indexation of student loan debt has left many feeling it will never be reduced to zero.
But Alex Pantos managed to achieve this incredible feat thanks to a simple lifestyle and incredible work ethic, and she tells Yahoo Finance that it feels amazing to have paid off all her debt at just 23 years old.
“Honestly, I feel relieved,” she said. “I can start again with a fresh mind, and I’m so happy that the money will go to something more meaningful and impactful.”
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Ms Pantos feared her student loan debt would continue to rise after HECS debt was indexed by a huge 7.1% last year and has risen by 4.7% this year.
Luckily, the 23-year-old, who graduated with a Bachelor of Business Administration from RMIT University, had built up savings by working full-time while studying and investing in the stock market.
This combination allowed her to pay off her student loan debt without financial hardship.
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Should I pay off my HECS debt in one lump sum?
If you earn more than $54,435 a year, a portion of your salary will go towards paying off your student loans.
Because of how the HECS system works (more on this here), some people’s annual payments can end up exceeding the increase or decrease due to the price index, which is why it appears as if their payments never go down.
As a result, many are considering following Pantos’ example and putting all of their savings towards getting close to zero debt.
If you’re considering this for taking out a mortgage, mortgage broker Maddie Walton explains to Yahoo Finance why you should keep some cash on hand.
The story continues
“HECS will have an impact on your purchasing power when buying a property, but perhaps not in the way you might think,” she said.
“The HECS balance itself doesn’t matter – whether your HECS debt is $1000 or $150,000 it counts as the same to the bank.”
She said the amount allocated to HECS each pay cycle would be determined by income levels and banks would look at these two figures rather than student loan balances.
Walton doesn’t recommend paying back HECS debts unless they are below $15,000.
“It’s not done anything to increase the amount you can borrow, it’s just reduced the down payment available. It’s hard enough just saving for a down payment on a house,” she said.
As for other investments, financial expert Helen Baker told Yahoo Finance that you should consider everything before making a big lump sum payment.
“For example, if you have to borrow money to pay it off, and borrowing rates are in the 7% range, it doesn’t make sense,” Baker says. “Are you going to invest in it? Do you have money sitting in cash that you’re not doing anything with? In that case, it might make sense to take some money off it.”
“What tax bracket are you in? What commitments are you expecting? What changes are likely to occur in your lifestyle over the next few years? Look at all of this in the context of it all and determine if and how much it makes sense.”
Pantos believes a lump sum payment would be more “strategic.”
The 23-year-old knows she could have left her HECS loan to make mandatory employer payments but didn’t want to be stuck with debt for years.
She wants to be “strategic” and believes the decision will benefit her “in the long run.”
The graduate explained to Yahoo Finance that he currently lives with his parents and has no plans to buy a house at the moment.
Additionally, she was considering moving to the US in the future for work and wanted to avoid accumulating HECS debt while overseas.
Mr Pantos added that payments that would have been paid into HECS could be put towards a share portfolio, which could be worth hundreds of thousands of dollars over time thanks to compound interest.
She said her decision would not be replicated by many Australians but she was confident it was the right one for her.
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