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Ask Paul: Should I pay off HECS or save for a home?

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With HECS balances rising again, many young Australians face the same tricky choice: pay down student debt or keep saving?

Reader question

Hi Paul,

Young Australian woman budgeting at home while weighing HECS debt against saving for a home deposit.

I know you've previously said that HECS-HELP is the cheapest debt you can have, but with indexation my balance just keeps going up.

I'm in my 20s, fortunate to be living at home and working part-time while I study. Should I focus on paying down my student debt or save to hopefully buy a unit one day?

Paul's response

Good question, Ally. The technical answer remains no.

A zero-interest debt, and one that just disappears when you die, is a cracking loan!

Clearly, lenders will take into account your student debt in terms of determining how much you can borrow to buy a home.

Another interesting point is how much you might earn. Your repayments are taken from your pre-tax income once you earn above $67,000.

If you ended up in a high-paying job, at more than $190,000, you'd be paying 47% tax including Medicare levy. A high-income earner would soon shred this debt.

We also need to add in politics.

As you know, the government is reducing student loan debt by 20%.

And when it comes to loan indexation with inflation, the outcry tends to see indexation lower than the actual rate of inflation. Will another 20% cut appear in the future?

My view is pretty simple.

Personally, I'd be building savings to give me the power to invest or accumulate a home deposit. Control what you can is a pretty good rule of money.

We also need to consider our own personality.

This is what I call the sleep-at-night test. I'll pick on me and my wife, Vicki. She would hate having student debt, so she would be better off paying it off and sleeping well.

I'd find it quite entertaining to build my wealth and leave the student debt alone.

If it turned out I earnt a high income, the student debt would be paid down from the compulsory payments.

I'd be happy with that.

Maybe your best solution is to leave this interest-free loan alone, save as you can and revisit the issue as you build your life and career?

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Paul Clitheroe AM is the founder of Money and serves as the publication's editorial adviser. One of Australia's most trusted personal finance experts, Paul has spent decades helping Australians build wealth, manage debt and make smarter money decisions. He is widely known for host­ing the Money TV program and authoring best-selling personal finance books. Since launching Money in 1999, he has played a leading role in delivering practical, independent financial guidance to Australians. Paul is chair of InvestSMART Financial Services. He was the founding chair of Ecstra Foundation, a national not-for-profit focused on improving financial wellbeing, from 2018 to 2026, and led the Australian Government's Financial Literacy Board and Financial Literacy Australia from 2004 to 2019. In academia, Paul is chair in financial literacy at Macquarie University, where he is also a Professor in the School of Business and Economics. Ask Paul your money question. Due to volume, Paul cannot respond to questions posted in the comments section.
Comments
Donna Hughes
June 11, 2026 2.23pm

Hi Paul,

I've just read the article on "should I pay my HECS off"...

You state that

"Another interesting point is how much you might earn. Your repayments are taken from your pre-tax income once you earn above $67,000."

From my understanding the HECS is calculated on your gross earnings, however, it is not deducted from your "pre tax" earnings, it is deducted from post tax earnings.

My son is in his 3rd year of a 4 year university course. I was always of the belief that paying off, if able, was a good thing. I'll review this now. We (parents) were prepared to contribute half the HECS debt for him as a leg up, having already paid 2 semesters. Perhaps it's best to invest the other money for him to use at a later date.

Thanks

Donna