Does HECS debt affect your credit score?

According to the Australian Taxation Office (ATO), 2.85 million Australians had an outstanding HELP debt in the 2020 financial year. That’s a lot of people and a whole lot of debt. 

You might be wondering if having such a large debt will affect your credit score. And you’re right to wonder - after all, your HECS debt can affect your ability to secure a home loan. 

Luckily, there is some good news. Whether you’ve got HECS-HELP or FEE-HELP debt from your studies, it won’t affect your credit score. That’s because these sorts of student loans work a little differently to the sort of loan you’ll get from the bank. 

For starters, you aren’t charged interest on your student loans. Rather, it’s indexed to inflation each year on June 1. This means that your existing debt maintains its real value by adjusting to changes in the cost of living, or Consumer Price Index (CPI). 

A cursory glance at the price tags on supermarket shelves is enough to notice the trickle-down effects of inflation happening right now. This means your student loan just got a whole lot larger too. 

While you’re in luck, in terms of your HECS debt not having any bearing on your credit score, it does mean it could take longer to chip away your loan.

If you’re wondering how much your debt has grown since June 1 2022, you can log into MyGov and follow the prompts to find your linked ATO account (the same place you lodge your tax return).

On the home page you should find a section called ‘loan accounts’, which lists any loans you have through the ATO, including the sort of loan and how much remains on your balance. 

You can then click each loan to see any repayments or the cost of indexation on your student loans.

If you have both a HECS-HELP loan and other forms of debt to your name, the choice between paying off your student debt or your other forms of credit can be a tough one to make. 

At a time when the HECS-HELP indexation just tripled, bumping up the average debt of $23,280 by $768, you could be forgiven for wanting to obliterate your student loan as soon as possible. But interest rates are also rising at the moment. That means that any loans you currently have may see a hike in interest repayments. 

As loans are tied to your credit score, where HELP debts aren’t, it may make more logical sense to ensure that you prioritise any debts which could affect your credit first – especially if you plan on applying for other loans, like a home loan, in the future. 

Let’s take a look at the advantages and disadvantages of paying off your HELP-HECS debt early. 

Advantages of paying off your HECS debt early

• Voluntary contributions will pay off your loan faster than income-based contributions, but keep in mind that they are non-refundable
• Free-up credit in your HELP balance, so that you can borrow more from the government if you decide to study again in the future 

Disadvantages of paying off your HECS debt early

• You may have less money to put towards your savings, travels, your car, or a home loan deposit
• Your other loans and debts may compound faster with rising interest rates, leading to your debts taking longer to pay off, and potentially affecting your credit score

Luckily, there is no time limit in which you need to pay off your HECS-HELP loan in its entirety. So, theoretically you could have unpaid student debt for your entire life without direct financial penalty. 

But, keep in mind that it could affect the amount which a lender lets you borrow when applying for a home loan, personal loan, or car loan, as HECS-HELP is deducted from your income before it hits your bank account. 

Lenders may see your student loan as an impediment to your ability to make satisfactory loan repayments, hence raising their lending risk.