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Ask Paul: Should I pay off my daughter's $40k HECS debt?

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Dear Paul,

My 29-year-old daughter has a $40,000 HECS bill, $15,000 car loan, pays $350 a week rent and is trying to save a deposit to buy a studio.

Should I help her and pay the HECS like her friends' parents did?

ask paul clitheroe should i pay off my daughters hecs debt

I worry she will never be able to pay it as the interest keeps increasing and her wages are low. What is your advice, as I am losing sleep with worrying about her situation? Thank you. - Melinda

Let's try to improve your sleep, Melinda.

How would you feel if you were offered an interest-free loan of $40,000 and you made no repayments until you earned around $48,500, when you started to pay 1% of your income towards it?

And if it was unpaid at your death, the loan was cancelled? We'd all be lined up to get one!

Sure, HECS debt is indexed, meaning it increases in line with inflation, but the key points are no repayments are required until you earn nearly $50,000. HECS debt, as it is not a normal enforceable debt, with interest repayments, does not affect your credit rating. That is the last loan I would ever pay off.

My view is that neither your daughter nor you should worry about HECS debt - it is the best debt I have ever heard of.

If you want to help her, I'd strongly suggest you look at a couple of options. One is paying out her car loan to allow her to save more.

But if I was in your shoes, I'd be looking at how you could help her buy that studio. An apartment in a good location will become a wonderful asset for your daughter and, even more importantly, a home.

My suspicion is that you would sleep better if your daughter owned a home and any assistance you wish to provide would be best used to do that.

The HECS debt is just a number with no interest and no fixed repayment term. I'd sleep like a baby with one of those!

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Paul Clitheroe AM is founder and editorial adviser of Money magazine. He is one of Australia's leading financial voices, responsible for bringing financial insight to Australians through personal finance books, the Money TV show, and this publication, which he established in 1999. Paul is the chair of the Australian Government Financial Literacy Board and is chairman of InvestSMART Financial Services. He is the chair of Financial Literacy at Macquarie University where he is also a Professor with the School of Business and Economics. Ask Paul your money question. Unfortunately Paul cannot respond to questions posted in the comments section. View our disclaimer.
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Money magazine
September 7, 2022 11.22am

*EDITOR'S NOTE*

Paul Clitheroe is unable to respond to questions posted here in the comments.

Click here to ask your question: https://www.moneymag.com.au/co...

Irene Tsang
September 7, 2022 5.06pm

Why some parents want to help their children - for example buy their first home, when their children still not afford to? Why Melinda's daughter cannot stay home? But choose to pay $350.0 per week rent? Do she knows that she can save money instead of renting, for the deposit of her first home. Nowadays we spoil our kid too much. If they haven't been go down that road to save, you just give, give and give; they will never know how to value what they got.

silas j
September 7, 2022 5.15pm

Maybe Melinda's daughter doesn't live in the same city or town. She could have moved away to study or get a job. Pretty narrow-minded to assume everyone can stay living with their parents until their 30s.

Abre G
October 12, 2022 8.50am

Definitely prioritise other debt ahead of a HECS/HELP debt.

Virginia H
March 9, 2024 4.56pm

In 2024 Paul's advice is outdated now that indexation on HECS debts has been implemented. Melinda's daughter's debt will be indexed at 7.1% in line with CPI in 2023. That means that her $40K debt has risen to $42,8K and the value will keep increasing year on year by CPI whether payments are made or not made. Let's say in 2024 CPI is 5%. Melinda's debt will grow from $42.8K to $44.9K. This is about to become an insidious, hidden problem for many with HECS debts who believe they are living in interest free territory. This is now one of the worst debts to carry on this basis. Some may look at their HECS debt in 5 years time only to learn that their $40K original debt is now a balance owing of $50K due to indexation. Pay HECS debts off sooner rather than later. Pay it off today.