With interest rates currently pretty high and rising, lumping the totality of your HECS payments in a savings account instead of paying upfront is not a bad idea.
Let's say for example that, at its current value, it's looking like your HECS debt will cost you $18000 over a three-year-degree.
Looking at an investment schedule from my bank (Teachers Credit Union), you can currently get a 36-month term deposit at an interest rate of 8%. That will yield a toal amount of $22674 over 3 years if you invest $18000 now. A 20% discount on $18000 will save you $3600. Therefore you will make a saving of roughly $1000.
However, the entirety of your HECS debt will be adjusted for inflation. Also, your bank may charge you fees. Also your interest will be taxed. Therefore your saving may be eroded. And then there is the question whether you have the cash flow to do it.
On the other option, up-front versus deferring, there is a good article here by Ross Gittins which makes a similar point to Zarathustra's post: http://www.smh.com.au/articles/2004/03/12/1078594564502.html. Or just read the concluding line: "From what I can gather, it's only those students whose earnings in their first 10 or 15 years as a graduate are significantly above the average for graduates who are likely to be better off paying upfront."
Overall therefore you are going to have to make a prediction as to what you will be earning after your degree to work out whether you will make a saving, also thinking about what inflation will likely be.
I think the upfront 20% discount payment is regardless not a bad deal and by paying it you are guaranteed to be making some kind of saving.
Let's say for example that, at its current value, it's looking like your HECS debt will cost you $18000 over a three-year-degree.
Looking at an investment schedule from my bank (Teachers Credit Union), you can currently get a 36-month term deposit at an interest rate of 8%. That will yield a toal amount of $22674 over 3 years if you invest $18000 now. A 20% discount on $18000 will save you $3600. Therefore you will make a saving of roughly $1000.
However, the entirety of your HECS debt will be adjusted for inflation. Also, your bank may charge you fees. Also your interest will be taxed. Therefore your saving may be eroded. And then there is the question whether you have the cash flow to do it.
On the other option, up-front versus deferring, there is a good article here by Ross Gittins which makes a similar point to Zarathustra's post: http://www.smh.com.au/articles/2004/03/12/1078594564502.html. Or just read the concluding line: "From what I can gather, it's only those students whose earnings in their first 10 or 15 years as a graduate are significantly above the average for graduates who are likely to be better off paying upfront."
Overall therefore you are going to have to make a prediction as to what you will be earning after your degree to work out whether you will make a saving, also thinking about what inflation will likely be.
I think the upfront 20% discount payment is regardless not a bad deal and by paying it you are guaranteed to be making some kind of saving.
Last edited: