Student loan advice

[vass]

The only debt I carry is my HECS/HELP debt (Australian student loans.) Mine is much larger than the average of $15,000, because I was at uni for three years longer than the norm for my course, and had to repeat a lot of classes due to disability issues which still affect me.

Australian student loans are government-owned, and are adjusted according to the consumer price index, but otherwise do not attract interest. No repayments are needed until the debtor reaches the repayment threshold, currently $44,912. I make nothing like $44K. I really don't make a lot of money at all.

If you make a voluntary repayment of $500 or more, you get a bonus of 10% on it, i.e for $500 the government wipes out $550 of your debt.

I don't like being in debt, even debt as benign as HECS/HELP. It hurts my pride.

If I saved as much extra as I could manage per month (on top of my normal savings) in a 5% savings account, then repaid that year's savings, including interest, and kept doing that every year until the debt was gone, it would take me 20 years (not accounting for inflation, because I have no idea how to do that, and I can't find a website that will give me a guideline. Any suggestions? At any rate, I hope and trust that it's less than 5% p.a.)

If I saved the same amount per month in a 5% savings account, then didn't repay it until I reached the target amount (again, without accounting for inflation) and then repaid it in full, it would take me 15 years.

Obviously, I'm hoping that I'll earn a higher annual income over the next 15-20 years, and be able to reach my goals sooner and form some new ones. But I want to start now.

The other thing to consider is that if I reach the repayment threshold, it will take me 15 years to repay my debt if I pay the minimum every year. And I don't know when (if ever) I'll reach that minimum threshold.

I guess what I'm looking for is support to do the smart thing and put the money in savings so I can repay it faster, not repay it five years slower just because it's psychologically more satisfying to see the numbers go down instead of seeing them actually go up through indexing.

Comments

[kuangning]

You know, what you're proposing to do if you start repaying before you hit the repayment threshold is, essentially, to reject your government's very sensible system which triggers off your income level, and harness yourself into something closer to the US system which triggers repayments regardless of income after a certain amount of time. I don't see why you'd seriously consider that; your governement's system is quite fair and designed to not saddle you with crippling debt repayment before you can afford to pay it.

Use your current money to support/establish yourself and save for emergencies, as you are intended to do. When you actually reach the debt threshold, you'll be in a much better position to make voluntary payments to clear your debt faster, and you can make that a priority then, since you will hopefully already have a good stash for emergencies and a bit of a nest egg as well.

[vass]

I don't know if you intended it to, but that came across as quite judgemental.

The fact that I would prefer not to be in debt does not mean I'm rejecting my government or trying to be like America, for Pete's sake.

[kuangning]

Note how I specifically said "your government's system" and not "your government." I said what you'd wind up in if you start repaying early is akin to the US system, because the effect is. I did not say you were trying to ape the US. You would, however, be strapping yourself into debt repayments you cannot currently afford, which is a common effect of the US system, hence why I used the comparison, and doing so unnecessarily because your system is set up to prevent that from happening to you. Work with the system you have; it will leave you paying off your debt faster and with less hardship than if you start struggling to make repayments before you can afford them.