Does HECS Debt Affect Your Credit Score?

According to the Australian Taxation Office (ATO), 2.85 million Australians had unpaid HELP debt in the 2020 financial year. That’s a lot of people and a lot of debt.

You may be wondering if having such a large amount of debt will affect your credit score. And you’re right to wonder – after all, your HECS debt can affect your ability to get a home loan.

Fortunately, there is good news. Whether you have HECS-HELP or FEE-HELP debt from your studies, it will not affect your credit score. That’s because these types of student loans work a little differently than the type of loan you’ll get from the bank.

For starters, you don’t pay interest on your student loans. Instead, it is indexed to inflation each year on June 1. This means that your existing debt retains its real value by adjusting to changes in the cost of living, or consumer price index (CPI).

A quick glance at the price tags on supermarket shelves is enough to notice the trickle-down effects of inflation that are happening right now. This means that your student loan has also just become much larger.

Although you’re in luck, since your HECS debt doesn’t affect your credit score, it means it could take longer to reduce your loan.

If you’re wondering how much your debt has increased since June 1, 2022, you can log into MyGov and follow the instructions to find your linked ATO account (the same place where you file your tax return).

On the homepage, you should find a section called “loan accounts”, which lists all the loans you have through the ATO, including the type of loan and the amount remaining on your balance.

You can then click on each loan to see the repayments or cost of indexing your student loans.

If you have both a HECS-HELP loan and other forms of debt in your name, the choice between paying off your student debt or your other forms of credit can be difficult to make.

At a time when HECS-HELP indexation just tripled, pushing the average debt of $23,280 up by $768, you could be forgiven for wanting to wipe out your student loan as soon as possible. But interest rates are also rising right now. This means that any loans you currently have may see an increase in interest payments.

As loans are linked to your credit score, unlike HELP debt, it may make more sense to ensure that you prioritize any debts that could affect your credit first – especially if you plan to apply for other loans, such as a home loan. , in the future.

Let’s take a look at the advantages and disadvantages of early repayment of your HELP-HECS debt.

Benefits of Paying Off Your HECS Debt Early

  • Voluntary contributions will pay off your loan faster than income-based contributions, but keep in mind that they are non-repayable
  • Free up credit on your HELP balance, so you can borrow more from the government if you decide to go back to school in the future

Disadvantages of Paying Off Your HECS Debt Early

  • You may have less money to spend on savings, travel, your car, or a home loan
  • Your other loans and debts can pile up faster with rising interest rates, making your debts take longer to pay off and can affect your credit score

Fortunately, there is no time limit in which you must repay your HECS-HELP loan in full. So, theoretically, you could have unpaid student debt all your life with no direct financial penalty.

But keep in mind that this could affect how much a lender lets you borrow when applying for a home loan, personal loan, or car loan, because HECS-HELP is deducted from your earnings before it reaches your bank account.

Lenders may see your student loan as a barrier to your ability to make satisfactory loan repayments, increasing their loan risk.