If you have a HECS-HELP debt, you have probably wondered whether to clear it as fast as possible or put that money to work elsewhere. It is a genuinely tricky call, because HECS debt is not like other debt: no interest rate in the usual sense, no monthly bill, and no penalty for taking your time. Yet the debt does grow, and repayments do come out of your pay. So which move leaves you better off: paying it off early, parking the cash in a mortgage offset account, or investing it?
The honest answer depends on your income, your balance, and what else you would do with the money. This guide works through the 2025–26 repayment rates and indexation figures so you can decide on numbers, not gut feel.
How HECS-HELP Repayments Actually Work
HECS-HELP is repaid through the tax system, not through a loan servicer. Once your repayment income passes the minimum threshold, a percentage of it is withheld as a compulsory repayment. You do not choose the amount, and you cannot pause it while above the threshold.
For 2025–26, the compulsory repayment rates are:
| Repayment income | Compulsory repayment |
|---|---|
| $67,000 or less | Nil |
| $67,001 to $125,000 | 15 cents for each $1 over $67,000 |
| $125,001 to $179,285 | $8,700 plus 17 cents for each $1 over $125,000 |
| Over $179,285 | 10% of total income |
Two features of this system matter enormously for the pay-it-off-early question. First, compulsory repayments happen regardless of any voluntary payments you make. Paying extra does not reduce the amount withheld from your pay; it only shortens the tail of the debt, bringing forward the date the balance hits zero. Second, repayment income includes items such as reportable fringe benefits and reportable super contributions, so it can exceed your salary alone.
To see your own compulsory repayment, the HECS calculator lets you plug in your income and balance and estimate your repayment and how long the debt will take to clear.
The Real Cost of Holding the Debt: Indexation
HECS-HELP does not charge interest, but it is indexed each year on 1 June to keep pace with the cost of living. Indexation is applied at the lower of the Consumer Price Index (CPI) and the Wage Price Index (WPI), and it applies to debt that is more than 11 months old. In recent years the rates have been 3.2% on 1 June 2025 and 2.8% on 1 June 2026.
Indexation is the real cost of holding the debt: modest in any single year, but it adds up on a large balance, and you cannot avoid it by ignoring the debt. Here is what one year of indexation at 2.8% looks like on different balances:
| HECS balance | Indexation at 2.8% (one year) |
|---|---|
| $10,000 | $280 |
| $30,000 | $840 |
| $50,000 | $1,400 |
| $80,000 | $2,240 |
One more piece of recent history: a one-off 20% reduction was applied to HELP balances as at 1 June 2025. That has already happened, so it should not factor into a decision today — but it is a reminder that HECS policy can change.
There is also no discount for voluntary repayments. The old voluntary repayment bonus no longer applies. Paying early earns no reward; it simply removes balance that would otherwise be indexed in future years. That is the entire financial benefit, and it is worth being clear-eyed about it.
What a Voluntary Repayment Actually Changes
Because compulsory repayments continue regardless, a voluntary payment does not free up cash flow in the short term. Your take-home pay stays the same next fortnight. What changes is the end date: the debt clears sooner, which means fewer years of indexation and an earlier end to compulsory repayments.
Timing matters if you do decide to pay. Indexation is applied on 1 June to debt more than 11 months old, so a payment made before 1 June reduces the balance that gets indexed, while a payment made just after misses that year’s saving entirely. If you are going to pay anyway, paying in May rather than July is worth real money on a large balance.
Pay Off HECS vs a Mortgage Offset Account
If you have a home loan with an offset account, this is usually the strongest alternative to paying off HECS. Every dollar in an offset account saves interest at your mortgage rate, and mortgage rates are typically higher than the HECS indexation rate. Dollar for dollar, the offset usually wins: the interest saved is larger than the indexation avoided.
The offset account has a second advantage that HECS repayment cannot match: flexibility. Money in an offset account is still yours. You can redraw it in an emergency, use it for a renovation, or put it towards a future property. A voluntary HECS payment is gone for good — you cannot get it back if your circumstances change.
That said, the offset comparison only works if you actually have a mortgage with an offset facility. If you do not, the choice narrows to HECS versus investing or holding cash. And if maximising borrowing power for your next purchase is the goal, clearing HECS outright may still be worth it, because it removes the compulsory repayment from a lender’s serviceability assessment.
Pay Off HECS vs Investing
Investing offers the highest potential upside — and the highest uncertainty. A diversified portfolio might return more than the indexation rate over the long run, but returns are not guaranteed. Markets fall as well as rise, and no particular year or decade is promised to beat indexation.
To see the trade-off, consider a purely hypothetical illustration: $10,000 invested at an illustrative 5% return would grow by $500 in a year, while $10,000 of HECS debt indexed at 2.8% would grow by $280 — investing ahead by $220 in that hypothetical year. But that 5% is an illustration only, not a forecast or a promise. In a down year, the same investment could lose value while the HECS debt still grows by indexation. The saving from paying off HECS, by contrast, is certain: every dollar of balance removed is a dollar that will never be indexed again.
Risk tolerance matters here. If the thought of your investment falling in value keeps you up at night, the guaranteed saving from clearing HECS may be worth more to you than a higher but uncertain return. If you have a long time horizon and can ride out volatility, investing may be the better long-term play. Either way, one rule comes first: keep an emergency fund before you do either. Voluntary HECS payments and investments are both poor substitutes for cash you can access when the car breaks down or work dries up. Clear high-interest debts, such as credit card balances, before HECS too — those really do charge punishing interest, unlike HECS.
Decision Framework: What Suits Your Situation?
There is no single right answer, but most people fall into one of these situations:
| Your situation | Usually the better move | Why |
|---|---|---|
| High income, large HECS balance | Consider voluntary payments | Compulsory repayments are large and the debt will last years, so indexation avoided adds up |
| Saving for a home deposit | Keep the cash | A deposit gets you into the market; HECS can be cleared later, and cash is flexible |
| Mortgage with an offset account | Put it in the offset | Interest saved usually beats indexation avoided, and the money stays accessible |
| Income below the $67,000 threshold | Do not rush | No compulsory repayments are due, so there is no cash-flow pressure; prioritise an emergency fund |
| Close to clearing the debt, or near retirement | Pay it off | A small remaining balance is cheap to clear and removes the repayment from your cash flow entirely |
| Comfortable cash buffer, no mortgage, no better use for the money | Pay it off | The guaranteed indexation saving beats cash sitting idle, and the debt is gone for good |
The framework’s message is not that everyone should pay HECS off early, nor that nobody should. The debt is cheap to hold compared with almost any other debt, which is exactly why the decision deserves thought rather than a reflex.
Frequently Asked Questions
Does paying off HECS early actually save money?
Yes, but only through indexation avoided. There is no discount or bonus for voluntary repayments, so the saving equals the future indexation on the balance you pay off. On a $30,000 balance at 2.8% indexation, paying it off a year earlier saves $840, and the saving compounds in every subsequent year the debt would otherwise have remained.
Will voluntary repayments reduce my compulsory repayments?
No. Compulsory repayments are set by your repayment income and the 2025–26 rates, and continue at the same level regardless of voluntary payments. Voluntary payments only shorten the tail of the debt, so you stop paying sooner — but your fortnightly take-home pay does not change until the debt is fully cleared.
Should I pay HECS before 1 June?
If you have already decided to pay, yes. Indexation is applied on 1 June to debt more than 11 months old, so a May payment reduces the balance that gets indexed, while a June or July payment misses that year’s saving.
Does HECS debt affect my credit score or my home loan?
HECS debt does not affect your credit score the way other debts do, because it is not reported to credit bureaus like a personal loan or credit card. However, lenders do factor your compulsory repayments into home loan serviceability assessments, so clearing the debt can increase the amount you can borrow.
What happens to my HECS debt if I die?
The debt dies with you. It is not passed on to your estate, your partner, or your family — one reason advisers often rank HECS last among debts to clear, since it can never become someone else’s burden.
Is it better to pay off HECS or invest the money?
It depends on your situation and risk appetite. Paying off HECS gives a certain saving equal to indexation avoided — currently 2.8% a year — while investing offers potentially higher but never guaranteed returns. With a mortgage offset account, the offset usually beats both dollar-for-dollar. And with no emergency fund, build that first. Running your own numbers through the HECS calculator is a good starting point.
The Bottom Line
Paying off HECS early is neither the no-brainer it is often made out to be nor a waste of money. The debt is cheap to hold — indexed at 2.8% rather than charged interest — and compulsory repayments continue whether you pay extra or not. Voluntary payments are a poor way to free up cash flow, but a sensible way to lock in a guaranteed saving if you have spare cash with no better home.
For most people the order is: build an emergency fund first, clear any genuinely high-interest debt, then compare your options. If you have a mortgage offset account, the offset usually wins. If you are saving for a deposit, keep the cash. If you are below the repayment threshold, there is no urgency. And if you have a large balance, a high income, and money sitting idle, paying HECS off early — ideally before 1 June — is a clean, certain win.
Before you decide, run your own figures. The HECS calculator shows your compulsory repayment under the 2025–26 rates and how long your debt will take to clear, so you can compare the real cost of holding the debt against whatever else you would do with the money.