HECS-HELP Changes 2026: 20% Debt Wipe, New Thresholds & What You'll Save

The Australian Government is applying a one-off 20% reduction to all outstanding HECS-HELP, VET Student Loan, and other HELP debt balances. This reduction is being applied automatically — you don't need to apply, fill in forms, or contact the ATO.

The reduction is backdated to 1 June 2025 and will appear on your account by mid-2026. If your HELP debt was $40,000, it's reduced to $32,000. If it was $60,000, it drops to $48,000.

This bit matters. If it was $100,000, it becomes $80,000. This is not a repayment — it's a permanent reduction in the amount you owe. The Government has estimated that approximately 3 million Australians with outstanding HELP debts will benefit, with the average debt holder seeing a reduction of approximately $5,600.

The total cost to the Budget is approximately $16 billion. This reform was a direct response to the indexation controversy of 2023-24, when HELP debts were indexed at 7.1% (the CPI rate), adding thousands of dollars to balances and provoking a public backlash that led to the Universities Accord review recommending this write-down. Not complicated — just easy to miss.

Here's the exact dollar saving from the 20% balance reduction at common HELP debt levels. $20,000 balance: reduced by $4,000 to $16,000. $30,000 balance: reduced by $6,000 to $24,000. $40,000 balance: reduced by $8,000 to $32,000. $50,000 balance: reduced by $10,000 to $40,000. $60,000 balance: reduced by $12,000 to $48,000. $80,000 balance: reduced by $16,000 to $64,000. $100,000 balance: reduced by $20,000 to $80,000. The reduction is applied to the balance as at 1 June 2025, before the 2024-25 indexation.

Any compulsory or voluntary repayments you made between 1 June 2025 and the date the credit is applied will be taken into account — you won't be disadvantaged. If you've already fully repaid your HELP debt between 1 June 2025 and now, you will receive a refund of the amount equivalent to the 20% reduction on your balance as at 1 June 2025. The ATO has stated that refunds for fully repaid debts will be processed from mid-2026 onwards.

From the 2025-26 income year (assessments issued from late 2026), the minimum repayment threshold increases from approximately $54,435 to $67,000. This means you won't be required to make any compulsory HELP repayments until your repayment income exceeds $67,000.

Don't skip this part. Repayment income includes your taxable income, total net investment losses, reportable fringe benefits, and reportable super contributions — so it captures more than just your salary. The impact of the higher threshold is significant for early-career graduates. A graduate earning $60,000 would previously have been making compulsory repayments of approximately $1,200 per year (2% of their income).

Under the new threshold, they make zero compulsory repayments, retaining that $1,200 in their take-home pay. At $65,000, they also make zero repayments (saving approximately $1,300 per year under the old rules). At $70,000, they will now pay a much lower rate under the new marginal system — approximately $300 per year compared to approximately $1,400 under the old system.

The higher threshold means approximately 600,000 fewer Australians will be making compulsory repayments at any given time.

This is arguably the most important structural change. Under the old system, HELP repayments were calculated on your entire repayment income — if you crossed a threshold, the higher rate applied to all of your income, not just the amount above the threshold.

This created punitive cliff edges. For example, under the old rules, a person earning $54,434 paid zero, but a person earning $54,436 (just $2 more) owed 1% of their entire income — approximately $544. The new system works like income tax brackets: you only pay the repayment rate on the income above each threshold.

The practical side: The new marginal repayment rates (from 2025-26) are: $0 to $67,000 = 0%. $67,001 to $78,000 = 1% of amount over $67,000. $78,001 to $89,000 = 2% of amount over $78,000. $89,001 to $100,000 = 3% of amount over $89,000. $100,001 to $112,000 = 4% of amount over $100,000. $112,001 to $130,000 = 5% of amount over $112,000. $130,001 to $152,000 = 6% of amount over $130,000. $152,001 to $180,000 = 7% of amount over $152,000. $180,001 and above = 8% of amount over $180,000 plus cumulative amounts from lower brackets. This marginal approach eliminates the cliff edges and means your repayment increases gradually as your income rises — just like income tax.

Take a graduate with a $40,000 HELP debt (now $32,000 after the 20% reduction). Here's what they would pay annually under the old whole-of-income system versus the new marginal system.

At $60,000 income: old system = $1,200 (2% of $60,000), new system = $0 (below $67K threshold). Saving: $1,200. At $70,000 income: old system = $1,400 (2% of $70,000), new system = $30 (1% of $3,000 over $67K).

Saving: $1,370. At $80,000 income: old system = $2,400 (3% of $80,000), new system = $150 ($110 from first bracket + $40 from second bracket). Saving: $2,250.

At $90,000 income: old system = $3,150 (3.5% of $90,000), new system = $480 ($110 + $220 + $150). Saving: $2,670.

What actually happens: At $100,000 income: old system = $4,000 (4% of $100,000), new system = $810 ($110 + $220 + $330 + $150). Saving: $3,190. At $120,000 income: old system = $5,400 (4.5% of $120,000), new system = $1,810 ($110 + $220 + $330 + $480 + $400 + $270).

Saving: $3,590. The savings are dramatic, particularly for middle-income earners in the $70,000 to $120,000 range who were most affected by the old cliff-edge system.

From 1 June 2023 onwards (applied retrospectively), HELP debt indexation is capped at the lower of CPI or the Wage Price Index (WPI). This means your HELP debt will never increase faster than average wages, eliminating the scenario that caused widespread outrage in 2023 when debts were indexed at 7.1% (CPI) while wages grew by only 3.7% (WPI).

Under the new rule, the 2023 indexation rate of 7.1% was retrospectively reduced to 3.2% (the WPI rate for that period). The ATO has already applied this retrospective adjustment to all accounts. Going forward, the indexation rate each year will be whichever is lower — CPI or WPI.

For 2025-26, CPI is running at approximately 3.5% while WPI is around 3.3%, so the indexation rate will be 3.3%. On a $40,000 debt, that means indexation adds $1,320 instead of $1,400. The practical impact is that your HELP debt will never grow in real terms relative to your income.

Here's the thing. If wages grow at 3.5% and indexation is capped at 3.5%, the debt-to-income ratio stays constant. Previously, high-CPI years could cause debt to balloon relative to earnings, discouraging participation in higher education — particularly for women who were more likely to take career breaks and see their debts compound without repayments.

The 20% reduction and new marginal repayment rates change the optimal strategy for voluntary HELP repayments. Previously, voluntary repayments attracted a 5% bonus (effectively a guaranteed 5% return).

That bonus was abolished in 2017, and without it, there's limited financial benefit to making voluntary repayments above the compulsory amount. With indexation now capped at WPI (currently around 3.3%), your HELP debt is growing at roughly the same rate as a high-interest savings account. Compared to the return on other uses of your money — paying down a 6.5% mortgage, contributing to super (where you get a 15% tax concession), or investing in diversified shares (long-term average return of 8-10%) — voluntary HELP repayments offer a poor return.

The general rule: don't make voluntary HELP repayments unless you've no other debt, are already maximising super contributions, and specifically want to be debt-free for psychological reasons. If you've a mortgage, every spare dollar should go into your offset account or extra mortgage repayments, where it saves you 6.5% in interest compared to the 3.3% your HELP debt is costing. Use our Income Tax Calculator to see how the new brackets and standard deduction affect your overall tax position alongside your HELP repayments. Now you know.