A win for those with student loans
In a move designed to support Australians, especially younger people, the government has passed new laws to cut student debt. This initiative is expected to help over three million people and clear more than $16 billion in outstanding loans.
How the 20% debt reduction works
A 20% reduction will be automatically applied to the balance of several types of student loans. If you have one of the following, you're set to benefit:
- HELP loans (including HECS-HELP, FEE-HELP, and others)
- VET Student Loans
- Australian Apprenticeship Support Loans
- Student Start-up Loans
- Student Financial Supplement Scheme
The reduction is calculated on your loan balance as it stood on 1 June 2025, before the usual annual indexation was added. Indexation will now only be applied to your new, lower balance. The Australian Taxation Office (ATO) will handle this all automatically, so you don't need to do anything. You should receive a notification once the change has been applied to your account.
What if you recently paid off your debt?
If you had a HELP debt on your ATO account on 1 April 2025 but paid it off in full after 1 June 2025, you might be in for a pleasant surprise. The reduction will likely create a credit on your HELP account. If you have no other tax or government debts, this credit should be refunded directly to you.
If you're curious about how much your debt might be reduced, the HELP debt estimator is a handy tool. Of course, if you need help figuring it all out, you can always reach out to a financial professional.
Changes to how you repay your loan
The government hasn't just reduced the total debt; it has also changed the rules around repayments. The main update is an increase in the amount you can earn before you have to start making compulsory repayments.
New income threshold for repayments
For the 2025-26 financial year, the minimum income threshold for making compulsory student loan repayments is increasing from $56,156 to $67,000.
This means you will only be required to make a repayment if your income is above $67,000 for the year. The repayments will also be calculated only on the portion of your income that is above this new threshold.
Your repayments will continue to be managed through the tax system. The final amount is usually worked out when you lodge your annual tax return with the ATO.
For many people, this change will mean more disposable income in their pocket each week. However, it's important to remember that it might also mean it takes longer to pay off your student loan in full. The only exception is if you decide to make extra voluntary repayments to clear your debt faster.
What this all means for you
These changes are a positive step forward, offering significant financial relief and flexibility. A lower total debt and a higher repayment threshold provide much-needed breathing room for many Australians managing their finances.
Staying informed about these updates is key to making the most of your financial situation. If you have any questions about how these student loan changes affect you specifically, getting professional advice is always a smart move.
If you're unsure how these updates might impact you or would like tailored guidance, have a chat with the team at LEAD. We're here to help you understand your options and make confident financial decisions.
