Is now a good time to pay down your HECS debt?

I am aged 25 and earn $117,000 a year. My only liability is my HECS student debt of $29,400, on which the interest rate has just gone up to 3.9 per cent. I am not looking to buy a property for a few years yet and, thanks to the generosity of the “bank of mum and dad”, I do not have to save for an upfront deposit. Would it be wise to pay off the HECS debt now, as I am worried it will keep growing and may affect my borrowing ability when I do eventually apply for a mortgage? The other option would be to invest in the sharemarket.

You are relatively well-placed for somebody of your age, and I think getting rid of the debt as soon as possible would take an uncertainty out of your future, and put you on a sound financial foundation.

Credit:Simon Letch

The HECS interest rate is indexed to inflation, so may rise to 5 per cent in the short-to-medium term.

If you do decide to invest in shares over repaying the HECS debt, you could suffer a loss if the sharemarket falls further, or be faced with capital gains tax if it goes up.

Getting an effective tax-free return of 3.9 per cent by repaying the HECS debt may be your best option.

I am aged 61 and my wife is 55. We have about $700,000 in superannuation between us, and are looking to sell the family home and downsize to another property on the Sunshine Coast, where we will both have jobs. The move would enable us to add about $200,000 to my wife’s super, which means we would have a new home worth $1.5 million and about $80,000 in cash. If I retire at, say, age 65 – and my wife keeps working – do I regard myself as an individual for a pension (as she is not retired) or are we a couple? We need about $80,000 a year to live on. Do we make up the shortfall between what we need and what my wife earns by making regular withdrawals from super?

For Centrelink age pension purposes, you would be regarded as a couple, with all your assets included, irrespective of their ownership.

The exception is superannuation, which is not counted until your wife reaches pensionable age. It would therefore be prudent to speak with a financial advisor as your retirement gets closer, and work out how much money should be held in your wife’s super and how much in your own.

You would be tested under both an asset test and an income test but, given that much of your financial assets would be held in your wife’s super, you would most likely fall under the income test rules. Therefore, her income may be the deciding factor.