Q: My daughter has commenced full-time work and has an outstanding HELP debt from her time at Uni. Should we just pay it off in a lump sum?
A: Coming out of university with a HELP debt is a fact of life for many students. A HELP loan accrues no interest but is indexed to the CPI at 1 June each year. Loan debts are not indexed until a debt has been in existence for 11 months.
The loan debt is repaid via the taxation system when your daughter commences employment at an income of greater than $45,881. The repayment rate percentage will vary from 1% at $45,881 progressively rising to 10% when income is greater than $134,573.
HELP is the cheapest loan your daughter will ever get; no interest and indexed only to inflation. She can make voluntary payments at any time. If she pays a lump sum before 1 June, then the CPI indexation will only apply against the balance outstanding.
When she has surplus funds or an unexpected windfall like a tax refund, she can pay lump sums against the accrued HELP debt if it really bothers her.