All Topics / Help Needed! / HECS-upfront Or Savings Maximiser??

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  • Profile photo of DraconisVDraconisV
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    @draconisv
    Join Date: 2006
    Post Count: 319

    The courses at uni that i am considering are generally 3 years and with a csp(commonwealth supported place) my fees will be about $7,000. If I pay these upfront, i get a 20% discount which then will be approximately $5,500. So overall it would be $16,500 total.
    Ok, next situation here is if I got HECS-HELP,
    (where they keep your balance oweing and have it free of interest(index it annually), then youi pay it off at a certain % every year once you earn a particular amount. )

    Would it be better to get HECS-HELP and keep that money that i would usually put into the hscs upfront and put into a savings maximiser account with ING DIRECT with a 5.85% variable rate or just pay the hecs upfront.

    One advantage of putting it in the savings is that it will be earning me interest and this money and the interest can rocket me into the property market quicker as i will be able to save a deposit up much quicker.

    A disadvantage would be once i am earning lots of money i will be paying an extra 4-8% tax which will be taken out to pay for my HECS-HELP no-interest loan.

    What does everyone recommend.
    PAY UPFRONT-save 20%?
    OR
    SAVINGS-rocket myself into propoerty quicker.

    I’ll jsut add this I just came up with this idea when I was in the shower about 20 minutes ago, and thought I would throw it on here, to see what everyone thinks.

    Christopher.

    DEAR MODS: I moved this post from the finances forum to this forum as I was not getting any replies. And I do NEED HELP..

    Profile photo of DraconisVDraconisV
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    @draconisv
    Join Date: 2006
    Post Count: 319

    Anyone, this has been driving me crazy for the past few days, someone reply.

    In need of advice, im desperate.

    Profile photo of cbellesinicbellesini
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    @cbellesini
    Join Date: 2005
    Post Count: 72

    Good question, hope this can help the understanding for a few people.
    From a cashflow perspective it would be better to use the HECS system and put into savings/property. Although the 20% discount is quite attractive the HECS loan is only 2.8% which is the cheapest loan you’ll ever get. You dopn’t pay the debt back until you earn over $35k roughly in whuch case you then pay back the 4% and upwards on a scale. so for example if you earnt 35k in a tax year you’d pay $1,400 as a HECS repayment. the good news is your employee would withhold this based on your salary and so it would effectively be $27 a week less in your pay packet. A small sacrafice I think to have your money available to you.

    Profile photo of DraconisVDraconisV
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    @draconisv
    Join Date: 2006
    Post Count: 319

    So your suggesting I keep the money in a savings account(and save it entirely), so that i can push myself into the property market much earlier.

    My goal is to have my first IP by before i am 22, if i dont get it before im 22, I will be very dissapointed in myself.

    Profile photo of siraitkensiraitken
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    @siraitken
    Join Date: 2006
    Post Count: 41

    Ok, well.

    I am also in the same situation as you, but i am paying my fees upfront. This is the reason why.

    Year 1 Hecs 7000
    Total Savings 5821.75 (5500*1.0585)
    Year 2 Hecs 14000
    Total Savings 11984 (5821*1.0585+5500)
    Year 3 Hecs 21000
    Total Savings 18506 (11984*1.0585+5500)

    So after 3 years your Hecs will still be more than your savings. Thus as i see it you still owe money for your education when it could have been paid off. Also don’t forget that you will have to pay tax on that interest you earn :)

    So my advice would be if you can afford to pay upfront then do so otherwise maybe find other investments with a higher return.

    Cheers, Dave

    Profile photo of siraitkensiraitken
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    @siraitken
    Join Date: 2006
    Post Count: 41

    Ohh and i also forgot, that HECS Debt get indexed with the CPI rate. So yeah increase those final HECS figues a thousand or so.

    Cheers, Dave

    Profile photo of DraconisVDraconisV
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    @draconisv
    Join Date: 2006
    Post Count: 319

    Also i forgot to mention, that for me to pay them in full, i would need to borrow the money off my parents. So i would be saving 20% and my parents would be paying the interest as i pay it off.

    This is such a tricky situation.

    Profile photo of siraitkensiraitken
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    @siraitken
    Join Date: 2006
    Post Count: 41

    Well that adds a whole new dimension….

    It really boils down to what is best for you.

    There is 3 options

    Op1-
    Borrow full amount off parents and pay them back ASAP (Over the 3 years this is the cheapest way)

    Op2-
    There is a part payment way where you get a 20% discount on any amounts over $500 so you could put in as much as you possibly could and the rest be HECS. Probably 2nd cheapest method (you’d have to calculate this)

    Op3-
    Full HECS and then try to generate the greatest savings in 3 years to match what you could have saved by paying upfront. Remember CPI adjusted (CPI = 3% approx this in turn decreases the purchasing power of your savings effectively by 3%, hence your saving rate would not be 5.85% it would be 2.85%). Also note interest will incur tax on the interest you earned.

    Another Factor-
    Was mentioned earlier but i’ll repeat it. The HECS option would allow a lot more options to invest and potentially generate a greater sum in the future. It is also taken out slowly when you reach that certain income so it will not drain your cash flow.

    Hope everything makes sense. In summary i still believe paying upfront is the best option.

    Cheers Dave

    Profile photo of cbellesinicbellesini
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    @cbellesini
    Join Date: 2005
    Post Count: 72

    Just something to add to Daves Opt 2 or 3 is the fact if you do have a HECS debt and make early repayments you get 10% off reducing the debt more quickly

    Profile photo of TerrywTerryw
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    @terryw
    Join Date: 2001
    Post Count: 16,213

    I owuld be inclined to put off the payment of the HECS debt till a later date. Putting the money in a savings account won’t make much difference, but all that money oculd add up for a deposit on a house, helping you get into the market quciker.

    There is also the possibility, tho slim, that the HECS scenario will change at a later date (eg. if Labour get in), they may abolish it, or change it so that you don’t have to start repaying it till you receive a higher income.

    Also you may be able to keep your income low, and never have to repay it now. eg using companies, trusts, or working overseas.

    A bird in the hand is worth two in the bush.

    Terryw
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    Profile photo of DraconisVDraconisV
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    @draconisv
    Join Date: 2006
    Post Count: 319

    I think I will go with the idea of borrowing off my parents and paying them back as quick as possible. With this I will pay complete upfrontand save 20%. I will easily be able to get rid of the debt as I have been paying $100 off my car for the past year and it will be paid off in 2 months, so It won’t matter to me if that money will still be leaving my pocket(though I may have to add more than 100 a week maybe like 120 or so).

    Thank you everyone for your help, it has helped put me at ease, well at least with this issue.

    Many issues to come concering property and I are in order I think.
    Everyone is helping out here with my many questions, whether they be small or gigantic or even a bit crazy. Thank you to you all.

    Regards Christopher.

    Profile photo of ducksterduckster
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    @duckster
    Join Date: 2004
    Post Count: 1,674

    it is not a 20% discount it is a 10% discount it was 20% but it changed
    when the scheme changed from HECS to HELP see
    On 1 June 2006, a payee’s accumulated HECS debt became an accumulated HELP debt.
    http://www.ato.gov.au/individuals/content.asp?doc=/content/12115.htm&page=1&H1

    http://www.ato.gov.au/individuals/content.asp?doc=/content/12115.htm&page=4&H4
    the debt is charged at CPI rate
    It used to be worthwhile paying off the debt when it was 20% but it is only 10%
    I have a HECS debt that I can’t pay off as I have no employment from my wonderful university course.
    I would wait if I was you until you earn a high wage as promised by the government that will help you pay off your help debt

    Profile photo of DraconisVDraconisV
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    @draconisv
    Join Date: 2006
    Post Count: 319

    Dam, ruins it. Hmm, now i’m going to resort back to just having the HELP debt and paying it off from my tax when I earn more money.

    Hmm, I don’t know dam…..

    You have to earn a certain amount to pay it off. Say you have no job and all your income came throught trusts(and the like) and you technically(and legally) had very little income to your name. With todays HELP(HECS whatever) rules you would never have to pay it off. But then the rules could change.

    Christopher.

    Profile photo of siraitkensiraitken
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    @siraitken
    Join Date: 2006
    Post Count: 41

    Thanks Duckster for clearing that up.

    I was unaware of the new rules. I was fortunately enrolled in uni before they increased HECS Fees and changed to the new HELP system.

    After hearing the new changes i would definately go with Terry and take on the HELP debt. 10% discount isn’t too significant compared to the increased cash flow and ability to pay later.

    Cheers, Dave
    Sorry for the mis-statement

    Profile photo of alottialotti
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    @alotti
    Join Date: 2006
    Post Count: 64

    You can do both, and you don’t have to decide right away. If you’re doing 4 modules in each semester, you can pay for 2 and leave the others, or whatever is convenient for you. That’s what I did. Now I pay $30 a week to pay off the remainding HECS & I don’t even feel it…

    Profile photo of crushercrusher
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    @crusher
    Join Date: 2002
    Post Count: 186

    If you want a high yielding online savings account, try Bankwest. They have a 12 month introductory rate of 6.6% rate for new clients.
    [biggrin]

    Todd Burns
    http://www.freepropertyhelp.com.au

    Profile photo of oziozi
    Member
    @ozi
    Join Date: 2004
    Post Count: 262
    Originally posted by crusher:

    If you want a high yielding online savings account, try Bankwest. They have a 12 month introductory rate of 6.4% rate for new clients.

    6.6% [biggrin]

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