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Understanding The 20% HECS-HELP Debt Reduction

Understanding the 20% HECS-HELP Debt Reduction

As part of its re-election promise, the Government committed to reducing all outstanding HECS-HELP debts by 20%. The legislation passed through the Senate today, 31st July 2025. Once it has received Royal Assent, the discount will apply retrospectively to any student loan balances as of June 1, 2025. While many Australians have noticed an increase in their student loan balances due to the annual indexation of 3.2%, the government has clarified that the 20% reduction will be calculated based on the pre-indexation amount.

How the Reduction Will Be Applied

Once legislated, the Australian Taxation Office (ATO) will automatically adjust eligible student loan accounts. The indexation will be recalculated based on the reduced debt amount, ensuring that borrowers benefit from both the discount and a lower indexed balance. This change is part of a broader effort to make student loan repayments more manageable, following last year’s reform that linked indexation to the lower of the Consumer Price Index (CPI) or Wage Price Index (WPI), rather than CPI alone.

Tax Season

For those preparing their tax returns, it’s important to note that the discount has not yet taken effect. There’s no need to delay filing your return, as the ATO will apply the discount automatically. However, borrowers who paid off their loans after June 1 may be eligible for a refund equivalent to the 20% discount (provided they don’t owe additional tax). The cut will take a few months for the Australian Tax Office to implement.

Other Updates

The legislation also includes reforms to the repayment system, ensuring compulsory repayments are marginal. The threshold at which students are required to start paying back their loans will be lifted from $54,435 (2024-25 minimum) to $67,000 from 1 July 2025.

Contact your Harris Black team member for any questions regarding this new legislation.

The information in this blog is intended only to provide a general overview and has not been prepared with a view to any particular situation or set of circumstances. It is not intended to be comprehensive nor does it constitute advice. While we attempt to ensure the information is current and accurate we do not guarantee its currency and accuracy. You should seek professional advice before acting or relying on any of the information in this blog as it may not be appropriate for your individual circumstances.

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