HECS warning after young Aussie pays off $43,000 student debt: 'Hard enough'

A young Aussie has paid off her massive $43,000 HECS debt just one year after graduating. Annual indexation on student loan debts has caused many to feel like they'll never get the number to zero.

But Alex Pantos has managed to achieve this incredible feat thanks to her frugal lifestyle and incredible work ethic. She told Yahoo Finance that paying it all off when she's only 23 feels amazing.

"Honestly, it's a sense of relief," she said. "I'm able to start fresh again. I feel so good about the money going towards something more meaningful and impactful."

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After copping the huge 7.1 per cent indexation on her HECS debt last year, and the 4.7 per cent increase this year, Pantos was worried her student loan would only continue to increase.

Thankfully for the 23-year-old, who graduated with a Bachelor of Business degree from RMIT University, she had been building up her savings during her studies by working full-time and investing in the share market.

This combination put her in a position where she was able to wipe her student loan debt, without financially crippling herself.

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Should you pay off your HECS debt in a lump sum?

If you earn over $54,435 a year, then a portion of your wage will be allocated to paying off that student loan debt.

Because of how the HECS system works (which you can find out more here), some people's payments across the whole year might be outstripped by indexation, which is why it seemingly never goes down.

As a result, many have been wondering if they should take Pantos' lead and allocate whatever savings they have to push their debt closer to zero.

If you're debating this to set yourself up better for a home loan soon, mortgage broker Maddie Walton explained to Yahoo Finance why you might want to hold onto your cash.

"HECS does affect your buying power purchase property, but probably not in the way you think," she said.

"The HECS balance itself doesn't matter. It doesn't matter if you have a $1,000 HECS debt or $150,000 HECS debt, it's considered the same in the eyes of the bank."

She said your income level will determine how much of your money is distributed to HECS each pay cycle and banks look at those two numbers rather than how much is sitting in your student loan.

Walton doesn't recommend people pay off their HECS debt unless it's $15,000 or less.

"You are doing nothing to increase your borrowing power. All you're doing is reducing the deposit you have available and it's hard enough to save for a deposit for house as it is," she said.

As for other investments, finance expert Helen Baker told Yahoo Finance you have to weigh up everything before making big lump sum payments.

“If you are having to borrow money, for example, in order to pay that off, if the borrowing rate is at the 7 per cent mark that doesn’t make sense,” Baker said. “Are you breaking into an investment to do it? Have you got money sitting in cash doing nothing? Maybe in that case it does make sense to clear some off.

“What tax bracket are you in? What commitments are you looking forward to? What things might change in your lifestyle going forward in the next few years? Look at all that together to work out whether it makes sense and how much makes sense."

Pantos believes the lump sum payment is more 'strategic'

The 23-year-old knows she could have left her HECS loan to her employer-compulsory payments, but she didn't want her debt hanging over her for years.

She wanted to be "strategic" and believes the decision will benefit her in the "long term".

The graduate explained to Yahoo Finance that she's living at home with her parents at the moment and isn't interested in buying a home just yet, but is comforted knowing her borrowing power won't be affected by her student loan.

Additionally, she's considering moving to the US to work in the future and didn't want her HECS debt growing while she was overseas.

Pantos added that her payments that would have been going to her HECS can now be applied to her stock portfolio, which could end up being worth hundreds of thousands of dollars over time thanks to compounding interest.

She said her decision won't be able to be replicated by many Aussies, but she's confident it was the right move for her.

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