Whether to pay off HECS-HELP early or invest the money instead is one of the most common personal finance questions for Australian graduates. The answer depends on the HECS indexation rate, expected investment returns, your income, and your personal priorities.
The Core Comparison
HECS-HELP does not charge interest — it is indexed to CPI (or the Wage Price Index, whichever is lower, from June 2025). The “cost” of keeping your HECS debt is the annual indexation rate, which varies year to year.
| If indexation is… | And your investments earn… | Outcome |
|---|---|---|
| 2.4% | 8% (long-run shares estimate) | Investing likely better |
| 4.7% | 8% | Investing likely better |
| 7.1% | 8% | Very close — depends on tax |
| 7.1% | 4% (savings account) | HECS repayment likely better |
In most years with normal inflation (2–3%), investing in diversified shares has historically generated returns well above the indexation rate — suggesting that keeping the HECS debt and investing is often mathematically superior.
Caveat: Past investment returns are not a reliable indicator of future performance. Actual returns vary.
The Tax Consideration
Investment returns are generally taxable — dividends as income, capital gains at your marginal rate. HECS indexation is not a tax-deductible expense. When comparing, you should look at after-tax investment returns versus the indexation rate.
For someone on a 37% marginal rate:
- A 9% gross investment return → approximately 6.5–7.5% after tax (depending on the asset type and holding period)
- HECS indexation of 2.4% is not tax-deductible
Even after tax, expected long-run share returns have historically exceeded HECS indexation rates in most years.
When Early Repayment May Make Sense
Paying off HECS early may suit you if:
- You are a conservative investor and the alternative is a savings account earning 4–5%
- Indexation is elevated (e.g., 7%+) and you do not expect investment returns to beat that
- Your HECS debt affects your borrowing capacity and you want to apply for a home loan soon
- You prefer certainty — paying off a debt has a guaranteed “return” equal to the indexation rate avoided
- Your debt is small — if you are $5,000–$10,000 away from paying it off, eliminating it provides psychological and practical benefit
When Investing May Make More Sense
Investing rather than paying down HECS may suit you if:
- You have a long investment horizon (10+ years) and are comfortable with market volatility
- Indexation is low (2–3%) and expected investment returns are materially higher
- You have no employer super match you could be missing (super contributions with employer matching are often a higher priority)
- You have high-interest debt (credit cards, personal loans) — always pay these off first
The Home Loan Consideration
HECS repayments reduce your take-home pay and are treated as a liability by lenders. A $60,000 HECS debt at a 2% repayment rate means $1,200/year less in take-home pay — which can reduce your borrowing capacity by roughly $5,000–$10,000 depending on the lender’s assessment.
If maximising borrowing capacity for a home purchase is a priority, paying down HECS may be worthwhile — not for the financial return but for the lending benefit.
Related Articles
- Making Voluntary HECS Repayments
- HECS Indexation Explained
- Does HECS Debt Affect Your Borrowing Capacity?
- HECS-HELP Australia hub
Frequently Asked Questions
Is it worth paying off HECS early? It depends on the indexation rate and your investment alternatives. In most years with moderate inflation, investing in diversified assets has historically offered higher returns than the cost of HECS indexation. However, certainty, borrowing capacity, and personal preference are also valid factors.
Does paying off HECS affect my tax return? Voluntary repayments reduce your HECS balance but do not reduce your income tax or compulsory HECS repayment for the year. They reduce the outstanding debt, which reduces future compulsory repayments.
Should I pay off HECS or put money in super? This depends on your age, super balance, employer contribution matching, and the indexation rate. For most younger Australians with employer super matching (12% SG), super contributions are likely a higher priority than HECS repayment.
This article provides general financial information for FY2025–26. It does not constitute personal financial advice. For advice tailored to your situation, speak with a registered financial adviser or tax agent. Find one through ASIC’s MoneySmart or the Tax Practitioners Board register.