Understanding the Latest HECS Changes: 20% Student Loan Debt Reduction
The Australian Government has made important changes to the HECS-HELP student loan system. This is in response to rising living costs and increasing student debt. These changes include a one-time 20% cut in many student loan balances. They also involve a complete update of the repayment threshold and rate system.
The goal of these changes is to reduce the financial stress on graduates and current students, helping them to manage HECS-HELP debt repayments while starting their careers or building financial stability.
This article breaks down what these changes mean for anyone with a HECS-HELP (or other HELP) debt. We’ll explain how HECS-HELP loans work, discuss the new one-off student loan debt reduction and the higher income threshold for repayments.
For small business owners, these changes aren’t just about personal finances, they also affect payroll systems. It’s important to check that these changes have been reflected.
Key Changes at a Glance:
20% reduction of HELP debts: A one-time cut of 20% on all eligible student loan balances.
The 20% reduction will be automatically applied to anyone with the following student loans, as of 1 June 2025:
HELP loans (eg, HECS-HELP, FEE-HELP, STARTUP-HELP, SA-HELP, OS-HELP)
VET Student loans
Australian Apprenticeship Support Loans
Student Start-up Loans
Student Financial Supplement Scheme.
Higher income threshold for student debt repayments: The minimum income for required repayments for these loans will rise to $67,000 in mid-2025. This is an increase from the mid-$50,000s. If you earn below $67,000, you’re unlikely to have to repay anything until you cross that line.
New student debt repayment system: Once you earn above $67,000, repayments for these loans apply only to income above that threshold (not your entire income). New marginal rates of 15% (for income $67k - $125k) and 17% (for income over $125k) will apply.
Automatic implementation: The ATO will apply the debt reduction and new thresholds automatically. Eligible borrowers don’t need to do anything to benefit from these changes.
Refunds for overpayments: If you made payments after 1 June 2025 before the 20% reduction, you may get a refund. Any overpaid amount applies once the ATO adjusts your HELP account if eligible. This is true only if you have no other government debts.
Whilst the ATO will apply the changes automatically to eligible student loans, it’s important for employers to check that their payroll systems reflect the changes to the ATO’s published tax tables.
HECS-HELP Basics: How the Loan Works
HECS-HELP (Higher Education Contribution Scheme - Higher Education Loan Program) is a student loan program that lets eligible students defer their university fees. Instead of paying upfront, the government pays the course fees (for Commonwealth supported students) and records a debt in the student’s name. Students repay this loan through the tax system once their income exceeds a certain threshold.
Key points about HECS-HELP loans to note include:
No interest (but indexation): HECS-HELP debts don’t accrue interest like a bank loan. However, inflation indexes the debt once it is at least 11 months old. This means the balance grows each year in line with the cost of living, so its real value stays about the same.
Income-based repayments: You only have to make repayments when your income is above the compulsory repayment threshold (adjusted annually). The tax system collects repayments. Essentially, your employer or the tax authority takes out an extra percentage from your pay or tax refund once you earn over the threshold.
Voluntary repayments: You can pay off your HECS-HELP debt faster by making additional voluntary repayments at any time. There are no fees or discounts for doing this; it simply reduces your outstanding balance (and future indexation).
HECS-HELP was created to make higher education easier to access. It removes upfront costs and adjusts repayments based on your income.
Rising Indexation and Early Repayments. The catalyst for change.
So why the change? Two major issues were making HECS-HELP debt more burdensome for graduates:
Skyrocketing indexation: Inflation surged in recent years, which pushed up the annual indexation on HELP debts. In 2023, for instance, analysts projected that HELP balances would increase by 7.1% in one year. That kind of jump added thousands of dollars to many debts, even as wages grew much more slowly.
Low repayment threshold: The income level for compulsory repayments kicked in around the mid-$50,000s. This meant that even graduates in entry-level or part-time jobs were paying part of their income towards HELP debt.
To address these concerns, the government made these changes, with the aim to make the system fairer and more manageable:
In late 2024, it set a limit on the indexation rate for student loans. This limit is the lower amount between the Consumer Price Index (CPI) and the Wage Price Index (WPI). They applied this retroactively to 2023, which dramatically reduced the indexation for that year (from 7.1% down to about 3.2%) and also lowered it in 2024. Going forward, your HELP debt will not grow faster than wages, a big relief when inflation is high.
In mid-2025, it offered more help. There was a one-time 20% cut to all current HELP debts. They also raised the income limit for future repayments.
Lastly, they changed to a new repayment system. These changes provide immediate debt reduction and ensure people repay loans when they can better afford to (not when they’re just starting out).
Millions of Australians will benefit by getting a chunk of their debt wiped out and facing smaller (or zero) compulsory repayments in the early years of their careers. We’ll explore these changes in more detail below.
20% Reduction in Student Loan Balances
The most attention-grabbing change is the one-off 20% reduction in the balance of all government study loans. This includes HECS-HELP and other related loans like FEE-HELP and VET Student Loans.
In plain language, the government is erasing 20% of these debts. Who gets the 20% reduction? Anyone who had an outstanding HELP or student loan balance on 1 June 2025 will have 20% of that balance forgiven. This covers:
HECS-HELP and related HELP loans (FEE-HELP, OS-HELP, SA-HELP, etc.)
VET Student Loans
Australian Apprenticeship loans
Student Start-up Loans and Student Financial Supplement loans
It’s estimated that over 3 million students will have their debts reduced, wiping out more than $16 billion in total.
How it works:
The reduction is calculated on the loan balance as of 1 June 2025 (just before that year’s indexation). The ATO will cut the balance by 20%, and then they apply the applicable indexation to the remaining amount. By reducing the principal first, the overall savings for students are maximised. The ATO will update students’ accounts with the change. If you’re eligible, you will see your debt decrease by 20% and a little more because of lower indexation.
No action needed:
This debt reduction is automatic. The Australian Taxation Office is updating all eligible loan accounts, so there’s nothing you need to do. If eligible, you will be notified (for example, via your myGov account) once the adjustment has been made to your HELP debt.
Timing and refunds:
It may take some time for the ATO to update every account, so the changes might not be seen immediately. If you made a repayment after 1 June 2025 before the change was applied, don’t worry, you won’t miss out. Once your account is adjusted, any amount overpaid will become a credit. If that credit means you’ve paid more than you owe, the excess will likely be refunded to you (assuming you have no other government debts). If you’re a small business owner still carrying your own student debt, a refund or balance reduction could free up personal cashflow.
Similarly, if you paid off your HELP loan before 1 June 2025 you get no reduction (since no balance existed on that date), but if you paid it off after 1 June you’ll still get the 20% off and will likely be refunded the overpayment.
Unsure how much of your debt will be wiped out by this reduction? Contact Cordner Advisory and we can help you calculate your new balance and plan accordingly.
Higher Income Threshold for Repayments
Another big change is a higher income threshold for compulsory student loan repayments. In short, starting in the 2025-26 tax year, you won’t have to begin repaying your HECS-HELP debt until you earn $67,000 or more a year. (For reference, the threshold for 2024-25 was around $54,000.)
This jump means many early-career workers will no longer have any HECS-HELP deductions taken from their pay until they reach a significantly higher salary. In practical terms, if you earn $60,000 a year, you now keep all of your pay (aside from normal income tax) without any portion going toward student debt. Under the old rules, a $60k income would have triggered a compulsory repayment.
If you run a small business, this can also impact how you draw income from the business. A higher threshold gives you more flexibility when deciding how much to pay yourself as a salary, without triggering student loan repayments too early.
By raising the threshold to $67,000, the government wants to help graduates find financial stability. This change allows you to pay for living costs or save some money before you start repaying student loans. (And remember, this threshold will continue to index in future years, so it should keep pace with wage growth.)
New Marginal Repayment System
The way compulsory repayments are calculated has also been made more precise and fair. Before, when you earned above a certain amount, a fixed percentage of your total income was taken for HECS repayment. This could cause a sharp jump in required payments as soon as you earned just over the threshold. Now, they will calculate repayments only on the portion of income above $67,000.
This works similarly to income tax brackets shown below:
If you earn below $67,000, you pay $0 towards HECS-HELP.
If you earn above $67,000, you pay 15% of the income over $67k (up to $125,000).
If you earn more than $125,000, a 17% rate applies on the income over $125k.
If you earn $70,000, which is $3,000 over the limit, your HECS repayment would be 15% of $3,000. This means you would pay about $450 for the year. In the old system, you might have paid a percentage of the full $70,000, which would have been a much larger repayment amount. This change also simplifies payroll compliance for business owners, as repayments are calculated more fairly and gradually rather than creating sudden jumps when staff incomes cross the threshold.
The new approach avoids a sudden “cliff” effect and makes the system easier to understand. Essentially, it’s an extra tax only on your higher income, rather than a blanket charge on everything you earn. You will still repay through the tax system as before.
Employers and the ATO will handle the calculations. If you have a HELP debt, tell your payroll office about the new threshold. This way, they can use the updated withholding tables. If you are a business owner, it’s important to check the changes have been applied in your business’ payroll system.
When you file your FY2026 tax return, the ATO will use these new rules. They will check if you paid the right amount or if you should pay more or less. For many people, repayment amounts will likely decrease with these recent changes. The goal is to give them more disposable income when they earn less.
Should You Make Voluntary Repayments?
With a 20% debt reduction in place and smaller compulsory payments ahead, you might wonder if it’s worth putting extra money toward your HECS-HELP debt or if you’re better off focusing on other things. There’s no universal answer. It depends on your personal financial picture:
Because HELP debt has been reduced and indexation is capped at modest levels, the “cost” of carrying that debt is lower than it used to be. If you have other debts with higher interest, like credit cards or some loans, it might be beneficial to pay those off first.
On the other hand, paying off a HELP debt sooner can bring peace of mind. It can also stop future indexation.
Many people treat HECS-HELP as a low-priority debt due to its low effective interest, choosing instead to build savings or pay down more expensive debts. Others just prefer not to have any debt lingering. The ultimate plan will be about finding balance in your financial goals.
Now that these reforms have changed the landscape, it’s a good opportunity to re-evaluate your financial strategy. If you’re unsure, talking to a financial advisor can help. They can weigh the benefits of extra repayments against other uses of your money, tailored to your circumstances.
Unsure whether to pay off your HECS-HELP debt faster or let it be? Reach out to Cordner Advisory for tax and accounting guidance tailored to your situation and goals.
Frequently Asked Questions
Q: Do I need to do anything to get the 20% loan reduction?
A: If you’re eligible, then no action is required. The 20% reduction will be applied automatically. The ATO will adjust eligible loan balances, there’s no application or action required on your part. Just monitor your HELP debt through myGov or ATO online services, and if you’re eligible you’ll see the balance drop after the system processes the change.
Q: When will the reduction show up on my account?
A: The 20% cut took effect on 1 June 2025, but updating all accounts will take time. The ATO will notify you once your loan adjustment is complete if it’s eligible. In the meantime, keep doing your tax and repayment activities as usual. Any needed corrections, like a refund for overpayment, will be taken care of after your debt is adjusted.
Q: I paid off (or made a large payment on) my HELP debt just before these changes. Did I miss out?
A: If you completely paid off your debt before 1 June 2025, you won’t receive the 20% reduction because you had no balance on the cutoff date. (It’s unlucky timing, but note that you did avoid future indexation by clearing it.) If you had an eligible balance on June 1, 2025 and paid it off later, you will get the reduction. You will likely receive a refund for the amount you overpaid, as explained above.
Q: How do these changes affect me if I’m self-employed or running a small business?
A: If you’re self-employed, your repayments are likely calculated when you lodge your tax return, based on your taxable income. The higher threshold means more breathing room before repayments apply.
Final Thoughts
The HECS-HELP changes are a welcome development for those with student debt. A significant portion of existing loan balances has been forgiven, and the repayment system is now gentler, starting later and scaling with income more fairly. This should help graduates focus on building their lives without the immediate stress of student debt.
That said, it’s still important to keep an eye on your HELP balance and have a plan to clear it eventually. With some planning, you can integrate your student loan into your broader financial goals and tackle it when the time is right.
Need advice on managing your HECS-HELP debt under the new rules? Contact Cordner Advisory, Gold Coast Accountants for assistance.
