Student debts – pay now or pay later?

In Australia, we have (what I think is) a pretty good payment model for tertiary education system.  It’s not anywhere near as cripplingly expensive as the US, but it’s not (effectively) free like in France.  The balance is struck by students paying 1/4 of their education costs, and the government covering the remaining 3/4.  When I started studying over a decade ago it was called HECS (Higher education contribution scheme).  Now it’s called HELP or HECS-HELP, where HELP stands for Higher education loan program).  This post looks at how I paid my debts, and whether I’d recommend the strategy to others. It’s also a little bit of a lesson on how Australia’s university fees are structured, for those who might not know!


How much is a year studying in Australia (for an Australian, of course!)?  A student will pay, for an annual full time load

$9,792 for law, dentistry, medicine, veterinary science, accounting, administration, economics and commerce (Band 1)

$8,363 for mathematics, statistics, science, computing, built environment, health, engineering, surveying and agriculture (Band 2)

$5,868 for humanities, behavioral science, social studies, foreign languages, visual and performing arts, education and nursing (Band 3)

That’s the student’s 25%.  They can pay it as they study, or once they start earning over $49,096 per annum (pa).  Once they are earning this amount, they start paying, they will start repaying their debt at 4% pa.  This rate increases to a maximum of 8% when you earn more than $91,178 pa.

The first thing I notice when I write that is that those earning figures are probably much higher than US earning figures.

However, if you want to pay your fees up front, you may.  When I was studying, there was a discount in any lump sum payment, either at the time of study or afterwards.  So if you got a nice lump sum of money, you could throw it at your student debt, and you’d be given a 10-20% discount (it’s been sliding down :().  BONUS! Of course, this has just been announced that it’s no longer going to be an option.

Lastly, there’s no interest.  Sure, the money is indexed to the Consumer Price Index, but otherwise, it’s the ‘best’ debt you could have.  No one offers interest THAT cheap.

So now that I’ve given a crash course in Australia’s higher education sector, let’s get down to business.  What’s better? Pay now or defer?

Well, I’ll tell you what I did, cause I’m not sure I’m worthy to advise anyone, but I can justify my thoughts and perhaps persuade anyone who might be unsure, that my model might work :p


The costs above to adjust annually, so when I started studying a little over 10 years ago, the costs were in the vicinity of $2,500 a semester, so $5,000 a year (I did mainly engineering, with some foreign language.  But I didn’t always do a ‘full’ load of 8 subjects, due to pre requisites and timetabling).  It took me six years, cause I went to France for a year, and then dragged out the harder part of my degree when I returned.  It should have taken five years – which means my total cost would have been $25,000.

I decided a ‘pay as I can’ model:

2003: My first year, I paid everything up front, so won a discount! Woot!  As I no longer can find the paperwork, let’s guesstimate $1,137 discount, as I studied 8 subjects

2004: In second year, I was still living off the $10,000 first year scholarship and started a casual job, so I paid both semesters.  Let’s assumed at $995.4 saving/discount for the 7 subjects

2005: In third year, I paid first semester saving $538.60 but not second semester (Debt +$1966).

2006: Fourth year, I was in France, so I had MUCH better uses for that coin :p  (Debt +$3920)

2007: In fifth year, I paid both semesters, saving $853.20 on the 6 subjects I studied

2008: But in sixth year, I had a full time job as a boarding mistress and I paid some upfront (and through payroll!).  So semester 1, I just had $700 to <, meaning I left (Debt + $574) outstanding, and I saved as well as in semester 2.

Paid Saving Debt
2003  $    4,494.60  $  1,137.60  $               –
2004  $    3,761.60  $     995.40  $               –
2005  $    2,154.40  $     538.00  $  1,966.00
2006  $                 –  $               –  $  3,920.00
2007  $    3,412.80  $     853.20  $               –
2008  $    2,440.80  $     607.50  $     574.00
 SUB TOTALS  $  16,264.20  $  4,131.70  $  6,460.00
3.4% indexation  $     133.00
2.8% indexation  $     168.00
 TOTAL  $  6,761.00

So overall, for those playing at home, I graduated with a $6,761 debt (with two indexations at at 3.4% and 2.8% adding $133 and $168 to my debt).  With an upfront payment, I could have been home free for $6,146.  Instead, I left it to be paid through payroll deductions, and by my second year working in my profession I had it paid off.

See, back then, I had the advantage of the upfront savings.  And I’m no mug, I like simple savings like that.  I knew when I graduated, I’d want to do other things with my money.  Like travel to the US (again), Canada, Cuba and the Bahamas, which I did five months after starting as an engineer.  After I returned from that trip, I thought I better get saving to buy a house (eventually) and travel some more.

In summary, it’s a great system.  It makes it possible for someone to study, without any upfront outlay of money or debt (there are books to buy, and campus fees to pay, but these are negligible in comparison  and both can be ‘avoided’ :p)  The savings for an upfront payment was a great incentive to limit my debt, but the structure was flexible to allow me to study abroad whilst at university.  I think that even without the savings, it’s a prudent approach to chip away at your debt at any time.  Others might argue that a no interest loan should be the lowest priority.  But, education should be a higher priority to spend your money on than many other things (like cars, in my opinion, holidays, eating out etc).  Sure, I didn’t live like a pauper, but every semester I ‘saved’ to pay the next semester’s debt if at all possible.

What do you think?  Should paying student debts be a priority?

15 Replies to “Student debts – pay now or pay later?”

  1. Great post, thanks. I finished my degree in 1996. I did casual work so that I could pay for about 50% of my degree (an Arts degree) up front to get the discount, which as you say was good back then! I deferred the remainder, which I chipped away at for a few years. An incentive was then offered of a generous discount (I think it was 25%) to settle the debt in full so I took advantage of that and paid it all off. I think it's important to regularly chip away at the debt. Even though the interest is lower than other debts, it's an important one to repay.

    1. Oh Kim, those were the days! We're so lucky here in Australia that they aren't higher, though with full fee places on offer now, I'm sure we're getting closer to the US model! I must get onto my phone to comment on your blog – sadly I can't comment from the PC due to the firewall 🙁

  2. It was interesting to hear about the Australian system! I wasn't clear on whether you continued your studies in France or took the year off? In Canada, students can borrow a lump sum each year to help cover both tuition and living expenses. So, for example, a year of an arts degree might cost $5800 for tuition, but a student could borrow $10,000 and apply the rest to living expenses. The whole amount would have to be repaid. The $5800 is really a subsidized amount – the rest is paid by "the tax payer" and is never recovered – usually provincial governments pay substantial costs for the running of universities.

    1. Like my health insurance post, I feel a bit 'educational' sharing Australia's way of doing things.

      Going to France was part of my degree, so I paid Australian tuition. As such, I could get Australian government benefits whilst in France as I was enrolled as a full time student in Australia.

      I believe that qualifying students could borrow for additional expenses in Australia, but there's been talk of removing that benefit. I know whilst i studied I applied for a scholarship from the commonwealth based on financial need, and whilst I met the conditions (as I qualified for student government benefits), there weren't enough to distribute one to every student.

  3. I think it's important to prioritize student debt but not any more so than other types of debt. Always knock out the option with the highest interest rate. A lot of those prices for Australian education are so much better than U.S. Dentistry is about 4x the cost for school here…

    1. Interestingly, it's the only debt I had when I graduated, but it wasn't a priority as much as 'living life' with my increased salary (knowing that I was paying down the debt with mandatory payroll deductions). Plus, a emergency fund is important at any stage, imo, over paying off this 'low' debt. You're right, we have it pretty good, in terms of the costs of tertiary education, but it's slowly becoming more and more like the US

  4. This is such a good overview of the system now; it's very helpful to read. I've almost lost touch because I am old enough that I *just* made it through my degree as they were just bringing in HECS. I had a couple of thousand debt and paid it off quickly after graduation.

    I do however have a few thousand owing now in HELP from further study in 2010-2011. I haven't paid it off yet because our mortgage (at 5.6%) is still the higher priority. As you say though, a prudent approach might be to chip away at it with a bit here and there. I must admit, I prioritize just about everything over HECS…might be time to re-evaluate!

    1. Ah yes, my father went to uni in the days when it was 'free' (when I was a baby).

      Maybe chip away at the student debts, but with a holiday fund recently started, it'd be hard to earmark money, if it was me. Maybe just a flat $50 a week on your HELP debt, or even $20, anything's a start (and ideally an amount you won't 'miss' esp now your husband's back at work?)

  5. I went through the system at exactly the same time – starting in 2003. I lived at home until halfway through third year, but was working casually as well, so was able to pay off a fair amount of first and second year, then deferred the rest of third year and Honours when I needed to pay rent and bills.

    And my PhD tuition has been completely free, as well as providing me with a living allowance scholarship. My debt is currently about $9000 and goes up a small amount each year. I've never earned enough to start paying it off, but I'm happy to wait until then. I think my house deposit is more important at the moment.

    1. It's definitely a balance between future money goals (like buying a house) and paying down debt. I don't think the banks take HECS debt into account which is nice. And we're lucky to know it'll get paid off once we earn enough. Didn't realise we were the same age!

  6. I applied for a personal loan last year but since I’m a student at that time (enrolled English class for 6 months) bank representative told me that I should apply for a student loan because the interest rate is only 11%. I managed to pay off $4,000 in 12-months automatic deduction to my salary. And this year I decided to go on holiday that I applied for a loan again double the amount of my previous loan, and then it hit me that bank debt is slowly eating me alive. Lesson in life, part of growing up.

    I finished my nursing degree in my home country, education is expensive, yes. But, I’m lucky enough because my parents paid for it. The government should pay half of the actual student loan, it’s not easy working part-time and studying at the same time. I experienced that one as well, half of your salary will go through loan payment.

    Love this post. 😉

    1. 11% is still a pretty high interest rate! I'd be cautious about loans for holidays (cause you can always delay a holiday til you've saved the money), but it seems it's taught you an important lesson. Working and studying is definately a balancing act!

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