More than 3 million Australians carry a HECS-HELP debt, with a combined balance exceeding $78 billion. In 2025-26, the system went through the biggest set of changes in a generation — a 20 per cent debt cut, a new repayment threshold, and a new way of calculating compulsory repayments. Here is a plain-English guide to how HECS-HELP debt works in 2026, what you owe, and what happens next.
The 20% Debt Cut — What Happened and Who Got It
The Australian Government legislated a one-off 20 per cent reduction on all HECS-HELP and other student debts through the Universities Accord (Cutting Student Debt by 20 Per Cent) Bill 2025, which became law on 2 August 2025.
The reduction was applied automatically by the ATO to debt balances as at 1 June 2025, before the annual indexation was added. You did not need to apply — the ATO processed it and sent notifications via SMS, email, or myGov Inbox.
For the average debt of approximately $27,600, the 20 per cent cut wiped around $5,520 from the balance. Most refunds and credits were processed by the end of January 2026, with more complex accounts finalised by February or March 2026.
The reduction covered HECS-HELP, VET Student Loans, Australian Apprenticeship Support Loans, and other income-contingent student support loans — a combined total of approximately $16 billion in debt wiped across all affected borrowers.
If you have not checked your balance since June 2025, log in to myGov and view your ATO online services to confirm the reduction has been applied.
The New Repayment System — From 1 July 2025
From 1 July 2025, how compulsory repayments are calculated changed fundamentally. Under the old system, once your income crossed the threshold, a percentage was applied to your entire repayment income. Under the new marginal system, you only pay on income above the threshold.
New minimum repayment threshold: $67,000 (up from $54,435 in 2024-25)
If you earn $67,000 or less, you make no compulsory repayment regardless of how large your debt is.
2025-26 repayment rates:
| Repayment income | Rate |
|---|---|
| $0 to $67,000 | Nil |
| $67,001 to $125,000 | 15 cents for every $1 above $67,000 |
| $125,001 to $179,285 | $8,700 plus 17 cents for every $1 above $125,000 |
| $179,286 and above | 10% of total repayment income |
Real-world example from the ATO:
Grace earns $80,000 and has a HECS debt. Under the old system her repayment was $2,800 per year (3.5% of $80,000). Under the new system she pays 15% of the $13,000 above the $67,000 threshold — just $1,950 per year. That is a saving of $850 per year, or around $32 extra in her fortnightly pay.
What Is Repayment Income?
Your repayment income is broader than your taxable income. The ATO includes:
- Taxable income
- Total net investment losses (including rental property losses)
- Reportable fringe benefits
- Reportable employer super contributions above the standard guarantee
- Exempt foreign employment income
This matters particularly for property investors and salary packagers. If you negatively gear a rental property, those losses are added back to your income for HECS purposes — meaning your repayment income can be higher than your taxable income.
How Indexation Works — and When It Hits in 2026
HECS-HELP is not a loan with interest in the traditional sense. No interest accrues. Instead, the ATO adjusts your balance once a year through indexation — applied on 1 June to all debts that have been unpaid for more than 11 months.
The indexation rate is set at the lower of the Consumer Price Index (CPI) or the Wage Price Index (WPI), ensuring your debt cannot grow faster than wages. This rule has applied since 1 June 2023 following the Universities Accord reforms.
Recent indexation history:
| Year | Applied rate | Notes |
|---|---|---|
| 2021 | 0.6% | Near-zero inflation era |
| 2022 | 3.9% | Inflation beginning to rise |
| 2023 | 3.2% (WPI) | Reduced from original 7.1% CPI — indexation credit issued |
| 2024 | 4.0% (WPI) | Reduced from original 4.7% CPI — indexation credit issued |
| 2025 | 3.2% | Lower of CPI/WPI applied |
| 2026 | TBC — 1 June 2026 | Based on March quarter data |
When will the June 2026 rate be known?
The indexation rate for 1 June 2026 will be calculable once the March quarter CPI data is released on 29 April 2026. The ATO calculates the figure based on ABS data over the previous two years. Given CPI was running at 3.7% annually and WPI at 3.4% as at recent readings, the June 2026 rate is likely to be in the 3–4% range — though the final figure will not be confirmed until after 29 April.
On a $25,000 balance, a 3.5% indexation rate adds $875 to your debt on 1 June. On a $40,000 balance it adds $1,400. This is why the timing of voluntary repayments matters.
Should You Make a Voluntary Repayment Before 1 June 2026?
This is a question worth thinking through carefully. Making a voluntary repayment before 1 June reduces the base amount on which indexation is calculated — meaning less gets added to your debt on 1 June.
The logic: if you pay down $5,000 before 1 June, and the indexation rate is 3.5%, you avoid $175 in indexation that would otherwise be added. That is a guaranteed 3.5% return on $5,000 — risk free.
But consider the trade-offs:
- HECS is the cheapest debt most Australians will ever have — no real interest, just inflation indexation
- If you have credit card debt, personal loans, or a car loan at 10–20% interest, pay those first
- If you are approaching the point of paying off your HECS entirely, paying down before 1 June makes strong sense to avoid indexation on the remaining balance
- If you have a large mortgage in a 4%+ interest rate environment, that debt is costing you more in real terms than HECS indexation
You can make voluntary repayments at any time via BPAY or the ATO online services in myGov.
HECS Debt and Overseas Australians
If you live or work overseas, your HECS obligation does not pause. You are required to file an Australian tax return and make compulsory repayments if your worldwide income exceeds the threshold. The ATO expects overseas compliance and has enforcement mechanisms through international tax information exchange agreements.
HECS Debt and Buying a Home
HECS debt affects your borrowing capacity because lenders factor your compulsory repayment into their serviceability assessment. A $30,000 HECS debt on an $80,000 income means approximately $1,950 per year in compulsory repayments — that reduces the amount a bank will lend you.
However, the new marginal system (paying only on income above $67,000) has reduced annual repayments for most borrowers, meaning slightly less impact on borrowing capacity than the old system. For the full picture of housing costs and affordability, see our house prices guide and our rent vs buy guide.
Key Takeaways — HECS-HELP Debt Australia 2026
The 20% debt cut was applied automatically in June-August 2025 — check your myGov account if you have not confirmed it. Repayments now start at $67,000 income and use a marginal system — only income above $67,000 is subject to repayment rates. The June 2026 indexation rate will be known after 29 April CPI data and is likely to be in the 3–4% range. Making a voluntary repayment before 1 June reduces the amount indexed. HECS is still the cheapest debt most people have — prioritise higher-interest debts first. For the broader picture of Australian tax in 2025-26, see our Australia tax rates 2026 guide.
This article is for general informational purposes only and does not constitute financial or tax advice. Always verify current thresholds and rates with the ATO at ato.gov.au or consult a registered tax agent for advice specific to your circumstances.
