Understanding HECS-HELP Repayments
How the new marginal HECS system works, what you actually repay at your income, indexation, voluntary repayments and how it affects your home loan.
General information and estimates only — not financial, tax, or legal advice. Always verify with a licensed adviser or the ATO.
Step 1.What HECS-HELP Actually Is and How Indexation Works
HECS-HELP (Higher Education Loan Program) is the Australian government's income-contingent student loan scheme. Unlike a commercial loan it charges no interest — but it is indexed each 1 June to keep pace with inflation. For several years indexation was below 1%, then it jumped sharply — 3.9% in 2023 and 7.1% in 2023, which triggered legislation capping indexation to the lower of CPI or the Wage Price Index. The government also passed a one-off 20% debt reduction that applied in June 2025. The critical thing to remember is that indexation happens on 1 June, but repayments from the previous financial year are not credited to your balance until your tax return is processed (usually July-October), which means they do not offset that year's indexation.
Step 2.The New Marginal HECS Repayment System From 1 July 2025
Until 30 June 2025, HECS worked on a cliff system — once you crossed the income threshold your entire income was hit with the repayment rate. From 1 July 2025 a marginal system replaced it. Now you only pay on income above $67,000, and only at the rate for the slice your income falls into. The practical effect is significantly lower repayments for most borrowers, especially those just above the old threshold. Under the old system, earning $68,000 triggered a repayment of roughly $680. Under the new marginal system, the same earner pays about $150. The change was designed to stop HECS acting as an effective marginal tax hike for people crossing the threshold.
Step 3.How Much You'll Actually Repay at Your Income
Under the marginal system, repayments are calculated only on the portion of your repayment income above $67,000. The repayment rate increases with income — roughly 15% between $67,000 and $124,999, then stepping up through higher brackets to around 17% at the top. 'Repayment income' is your taxable income plus reportable fringe benefits, exempt foreign income, net investment losses and reportable super contributions, not just your base salary. At $75,000 you pay about 15% of $8,000 = $1,200. At $100,000 you pay about 15% of $33,000 = $4,950. At $150,000 the calculation steps through multiple brackets. Savings Mate's HECS calculator handles the exact FY2025-26 marginal bands and shows your annual and weekly repayment.
Step 4.Should You Make Voluntary Repayments?
Voluntary HECS repayments used to be a no-brainer when the government offered a 10% bonus, but that bonus was abolished years ago. Today, voluntary repayments only make sense in specific circumstances. The key timing trick is that any voluntary payment made before 1 June (the indexation date) reduces your balance before indexation is calculated, which saves you the indexation on that amount. Whether you should pay voluntarily at all depends on your alternative — if your only other option is a high-interest savings account earning 5%, HECS indexation of 3-4% makes the voluntary repayment marginally better. If you have credit card debt at 20% or no emergency fund, do not touch HECS. Most Australians are better off focusing on super, home deposits or high-interest debt first.
Step 5.How HECS Affects Your Home Loan Borrowing Capacity
HECS is the single biggest gotcha for first home buyers with student debt. Lenders count your compulsory HECS repayment as an expense when working out borrowing capacity, and they use the full annual amount even though it comes out of your pay gradually. A $5,000 annual HECS repayment reduces your borrowing capacity by roughly $50,000 — sometimes more. Worse, some lenders treat any HECS debt as high risk regardless of the balance. Paying off HECS immediately before applying for a home loan can dramatically increase your borrowing power, but only if you can do it without draining your deposit. A common strategy is to pay off a small HECS balance entirely (say under $5,000) just before loan application, while leaving larger balances in place because paying them down barely moves borrowing capacity.
Step 6.When Your HECS Debt Is Finally Paid Off
Most HECS debts are repaid within 8-15 years of starting full-time work. The ATO sends you a 'Notice of Assessment' showing your remaining balance each year, and myGov's ATO online services section shows your real-time debt. When your balance reaches zero, your employer is notified via your tax file number declaration and should stop withholding the HECS component from your pay. This is not automatic at the employer level — you must lodge a new Tax File Number Declaration after your debt is paid off, otherwise your employer will keep withholding HECS amounts and the overpayment will be refunded in your next tax return. Check your payslips carefully after your final HECS payment shows on your ATO account.
Useful Tools
- HECS Calculator — marginal repayments for FY2025-26
- Tax Calculator — full take-home pay including HECS
- Borrowing Power Calculator — see how HECS affects your home loan
Resources
- ATO — HECS-HELP repayment thresholds and rates
- Study Assist — the Australian government study loan portal
- ASIC MoneySmart — Student loans