Apologies if this isn't exactly a Property-related question, I only ask because I'm considering purchasing a property right now, but at the same time am considering paying off my HECS completely instead.

I've got a HECS debt of approx $12k and also some savings equating to 20% of a FHO deposit. I haven't bothered putting in any "voluntary" repayments towards HECS because I (as most others) think of it as a loan at which i can get the best interest rate possible, which is simply equal to inflation (i.e. it changes yearly).

I've just done the math though, and am considering postponing the property purchase for another few months to be able to pay off my HECS completely. Reasons/maths as follows:

-Say you've got a bill of $20,000 (nice round number).

you could continue to pay this balance off from your AFTER-tax salary at a nominated rate (rate is relative to salary, but usually around 6% give or take). If you paid off say $4k/yr, and you get hit with a 4% inflation/yr on average (has been consistently that high for my last few HECS bills), then after the first year of paying $4k, you get an extra $800 (4% inflation) lumped on to your sum before you actually get it paid at tax time, even though you've been putting money aside monthly. Doesn't work like a normal loan repayment for those in the know...

So your yearly balance would be:

Year 1: $20,800>$16800 ($800 inflation)

Year 2: $17,472>$13,472 ($672 inflation)

Year 3: $14,011>$10,011 ($539 inflation)

Year 4: $20,800>$6411 ($400 inflation)

Year 5: $20,800>$2667 ($256 inflation)

then 2/3 through the 6th year you've paid off the final amount, assuming you continued at $4k/year (this should naturally rise in line with your salary but for the maths lets keep it simple)

So after 5 years you've paid nearly $2800 extra just for inflation, bringing your total amount paid to $22800 or thereabouts

COMPARE THIS with paying the whole thing off at year 1, and hence qualifying for a 10% discount (standard discount, or at least it is in Qld!). You pay upfront $18k, meaning a $4800 SAVING compared to the first option.

now i know that these numbers shouldn't be compared because one is a 2009 value and the other would be a 2014/15 currency, but you could consider also that you can invest in some of the difference and start to get further ahead... i think? either way, that still looks like a pretty significant saving!

My question is, if for whatever reason you didn't want to buy a property with the $80k you had sitting in the bank, would you get rid of your one and only debt?

sorry for the long post - i don't imagine this will get many responses but any will be appreciated! I imagine most on this forum haven't had to deal with hecs for a loooooong time!