The rush to pay off student debt before next week’s 7.1 per cent increase has led to many looking for alternative ways to settle their debt, including a loophole circulating on TikTok that allowed rewards points to be earned on the repayments.
Numerous videos posted on the popular social media platform last week promoted a “hack” where full points could be earned when paying down HECS/HELP debt with a rewards credit card, despite banks’ terms and conditions generally saying no rewards points are earned when making payments to government-related agencies.
This involved making the payment with the Beem payment app so the organisation receiving the payment – the Tax Office – is not identified by the card company, allowing the rewards points to be paid. Beem has since closed the loophole, with payments by credit card no longer allowed.
The popularity of the videos – with some racking up tens of thousands of views – indicates many are seeking different ways to pay off their debt before it is indexed at midnight on Wednesday, increasing by 7.1 per cent due to the current high rate of inflation. Student debt is managed by the Australian Tax Office.
However, some with student debts may be making hasty decisions that could leave them worse off than if they had allowed the debt to grow by the indexation rate.
Those who pay their student debt by credit or debit card will be up for a “card payment fee” which can, depending on the card, be as high as almost 2 per cent. That is almost $400 on a $20,000 payment of student debt.
Sally Tindall, the research director at RateCity questions whether credit cards should be used to repay sizeable student debts unless the card user has a plan to pay off the card debt itself.
That is particularly so for rewards cards, which have interest rates on debt that are not cleared in time – often slugging users with interest rates of about 20 per cent. The cards also come with annual fees that average about $200.
“Those paying off their student debt with a credit card before it’s indexed by 7.1 per cent on June 1 are dancing with the devil, unless they can clear the debt within their interest-free days,” Tindall says.