This a question that has plagued many an Aussie Dave Ramsey follower.
Should I include my HECS / Fee-HELP debt into my Debt Snowball?
According to Dave, all non-mortgage debt is to be paid off in BS2 (Baby Step 2 – “Pay off all your debt expect the house”)
But HECS / Fee-Help loans work a little differently in Australia, as opposed to the US.
Unlike the US, Australian Higher Education loans are technically ‘interest free’ ~ although they do increase each year at the rate of inflation.
Also, there are no compulsory repayments if your income in under the threshold ~ which is $54,126 pa at the time of writing (2015-2016 financial year).
But perhaps most significantly, the debt is non-transferable in the event of death (meaning neither the deceased person’s family or the trustee is required to pay the rest of the accumulated HECS / HELP debt).
[A few other things for any international readers, HECS / Fee-HELP loans can ONLY be used by students enrolled in Commonwealth supported places (subsidised higher education courses, typically public university degrees) to pay student contribution amounts (in other words, for their course units). It cannot be used for additional study cost such as accommodation or text books, and is paid directly to the university on the student’s behalf.]
For those of us who are not at the income threshold, is it more prudent to pay off our HECS debts, when we either a) reach the threshold, or b) having not reached the threshold but after completing Baby Step 6 ~ “Pay off the family home” ?
Why do some of us (myself included) feel this is a better way for Aussie’s to go?
Basically, yes – it’s a debt that needs to be paid back. I know that. But it is not a debt that is getting in the way of creating Financial Freedom. In fact, for many of us under the threshold, that money may be better off being used to pay off other consumer debt that is incurring interest, or building up an Emergency Fund, or being invested for our future, or paying down our family home.
While the jury is still out on this one, we have decided to move my HECS debt to Baby Step 6b – “Pay off the HECS debt”. Yes, I am rebel. No, don’t tell Dave.
For more information on HECS & Fee-HELP loans visit http://studyassist.gov.au
UPDATE: Jan ’17
Scott Pape, The Barefoot Investor, (I call him Aussie Dave) recommends that Aussie under the threshold hold off on paying back their HECS debts until after they have paid off their consumer debts, built up their emergency funds, and purchased a family home.
If you haven’t already, I highly recommend reading his book, The Barefoot Investor, & checking out his website https://barefootinvestor.com/