As promised by the Labour Party during the federal election campaign earlier this year, the Australian Government has passed legislation, on July 31 2025, to cut 20 per cent of existing Higher Education Loan Program (HELP) debts (previously called HECS). This move will affect around three million Australians and reduce outstanding loans by approximately $16 billion Australia-wide. For the average borrower, this means a saving of around $5,200 – a welcome relief for many, particularly younger Australians navigating rising living costs.
The one-off reduction will apply to all outstanding HELP balances as at 1 June 2025 and is expected to be processed by the end of this year. Importantly, any annual indexation – used to account for inflation – will be applied after the 20 per cent cut, ensuring borrowers benefit fully from the reduction.
In addition to debt cuts, the repayment system has shifted to a marginal rate model, similar to the income tax system, providing further relief for HELP holders. Additionally, repayments now start at an income threshold of $67,000, rather than the previous $56,156, with lower and middle earners benefiting most. People earning between $67,000 and $124,999 will repay 15¢ for each dollar they earn above $67,000, and those earning $125,000 and above will repay the $8700 a year, plus 17¢ of each dollar they earn above $125,000 through deductions from their before-tax pay.
One of the largest concerns of people holding existing HELP debts is their effect on borrowing capacity when looking to enter the housing market. In some cases, the removal of HELP debt may increase people’s borrowing capacity by as much as $50,000. Subsequently, many young Australians question whether they should prioritise repaying their HELP debt or invest in other financial goals. However, some lenders are now excluding HELP debts from serviceability calculations in certain cases, potentially increasing borrowing limits for many first-time buyers, accelerating their ability to enter the housing market.
While these reforms are positive, financial advisers caution that voluntary repayments should be carefully considered, particularly given the relatively low indexation rates, making HELP one of the cheapest debts to hold. Using freed-up funds from lower repayments to pay off higher-interest debts, save, or invest can often be a more effective strategy than rushing to clear HELP debt. Although, it is important to note that this depends on individual circumstances, attesting to the benefit of seeking professional advice.
Key tips to make the most of the changes:
- Check your HELP balance via MyGov and verify the 20 per cent reduction once applied.
- Use the new repayment thresholds wisely, directing extra take-home pay to savings or higher-interest debt.
- Consider voluntary repayments carefully and seek professional advice if needed. If you do decide to make voluntary repayments, ideally do this before annual indexation is applied on June 1 each year, so it is applied to a lower balance.
At dmca, we can help you navigate these changes and assess the best strategies for managing your HELP debt, balancing repayment with broader financial goals like saving for a home or investing for the future.