What To Do If Student HELP Debt Is Majorly Stressing You Out

When did you last check the balance of your student loan? Well, with the Turnbull government working to move university fee reforms through the Senate, it could be actually worth taking a look.

Changes to already pass the House of Representatives on Wednesday night include lower repayment thresholds on HECS-HELP loans, higher student fees and funding cuts across 2018 and 2019, AAP reports.

While it’s currently unclear if Labor or the Greens will stop or stall these changes (they certainly don’t endorse them), it could be saving the government a massive $2.8b.

HECS-HELP debt averaged to $20,700 per student in the last financial year, and a current national student debt bill of $50 billion, it does make you wonder – should I actually be worried?

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The short answer is a resounding “no”, according to Vince Scully, founder of financial planning consultancy LifeSherpa, who told Triple M that Aussie student debt presents as a frequent yet “unwarranted” worry among some of his younger clients.

“Part of the problem is the way the government has presented HELP [student loans]. It’s presented as a ‘debt’ so everyone gets very obsessed about it. If you look at it as an extra tax levy charged to graduates, it’s a lot easier to live with,” he said.

While Scully says lowering the HECS-HELP repayment threshold from $55K to $42K won’t be “game changing”, those working in lower paid industries such as hospitality and childcare may feel a pinch to their wallets – and struggle to be approved for certain financial products such as a home loan.

“The way it impacts on peoples abilities to get home loans is it limits how much they can borrow because it affects their cash flow. The actual balance is not particularly relevant for that calculation because the amount you pay every year is independent of the balance,” he said.

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If you are feeling stressed, then make a ‘plan’

Financial planner Leigh Morris – from Sydney Financial Planning – says handling student debt was not a “black and white issue”, and often becomes problematic when difficulties around managing personal debt arise. “People are usually stressed out about student debt because they don’t have a plan,” he said.

“If the student doesn’t have the cash flow to facilitate seeing a financial planner, which is what I would suggest would be the first option, it would be to read as much as possible, educate yourself online and figure out how to properly manage your money.”

For any graduates currently stressed out about managing their student debt, Morris says having a strong plan should include a complete review of current assets, liabilities and cashflow.  

“Yes you may have two, three, four debts but if you’ve got a strategy on how long it’s going to take to pay them down and you’re still able to maintain your lifestyle and meet living expenses, and once you have a plan it reduces stress,” he added.

“If you don’t have a plan and just see a mountain of debt, then of course it’s just going to remain stress.”

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Should you pay down your student debt early?

Financial planner Ian Helmore from consultancy Crosby Dalwood also recommends students undertake solid planning around their money – but importantly ensure they do not ignore their HECS-HELP debt.

“Don’t ignore it, be aware of it and actually deal with it. The sooner you clear it, the sooner you’re going to have that money available to enjoy and do things to improve your own financial position,” he said.

“Debt, and reduction of debt, is generally the first course of action. Reducing debt as soon as you can means you can concentrate on doing other things with your money. Debt is a short term thing, investments tend to be more medium term, and superannuation for a young person just finishing their degree seems like it is light years away.

“They generally will seem reluctant to be making voluntary repayments and from a tax point of view at that sort of level of income still has some advantages but would generally still look to reduce that debt down.

Scully, on the other hand, says there’s only a very rare set of circumstances where he’d suggest making voluntary HECS-HELP repayments. “We would very rarely advise anyone make additional payments,” he said.

“The one time when it really does make a big difference is the year before you pay off your final balance, it makes sense to make a payment just before June 30 because you pick up the discount and it does reduce the payment you make in the final year.”

Whatever you do, don’t get emotional over money

Scully urges people to treat their student debt simply as an extra tax payment – and don’t get caught up with the emotional territory that often comes with debt. “It’s sharing the benefits of your university education, some of which accrues to the individual and some of it accrues to society. Live with it, and think of it as paying a little a bit of tax for a few years,” he said.

“One of the big thing we focus on is emotions and feelings because that’s what makes managing money hard. We see people managing big budgets at work, and their own budgets are a mess. The only difference is emotions.

“We help people work with that and HECS is one that creates a huge amount of emotions.”

Remember this is all general advice only, and to always seek out professional financial advice before making massive decisions around managing money.