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As part of its election promises, the Labor government has cut all HECS-HELP student debt by 20 per cent.
This totals around $16 billion in debt for more than three million Australians.
The relief will help students pay off their debts sooner and better qualify for a loan, assisting more young Aussies into home ownership.
On top of these changes are the recent removal of $3 billion worth of debt through the government’s changes to cap the indexation applied to student loans to the lower of the Wage Price Index or the Consumer Price Index. This means that indexation will never be higher than the changes in wages.
The 20 per cent reduction will be calculated based on what a person’s debt amount was as at 1 June 2025, before indexation was applied. The current indexation is 3.2 per cent.
This is aimed at supporting young people, with the government claiming 70 per cent of people repaying student debts are 35 and under.
According to Finder, as of 2024, there were 2.93 million Aussies with outstanding HECS-HELP debt, at an average of $27,640. The reform will see around $5,520 wiped from the average debt figure.
Another proposed change to the legislation would see the income threshold at which people are required to start repaying their debt increase from $54,435 to $67,000.
The repayment structure is also changing to a marginal repayment system, affecting how repayments are calculated.
Calculations will be made on the portion of income above a new threshold of $67,000. This means lower-income earners will see reduced repayments, especially in the early years of their loan.
According to The Australian Financial Review, someone earning $82,000 will now pay $2,100 per annum in debt repayments, rather than the previous $3,280.
These reforms will benefit millions and unlock greater borrowing capacity for young Australians looking to enter the property market.
Not everyone is eager for the reforms to be enacted. Home Loan Experts’ senior mortgage broker Jonathan Preston said the changes create a “tightrope situation”.
“Taxes are already continually increasing across many areas and as we increasingly take on more and more causes, someone has to pay for it. We must be careful about how much tax the average household can really pay,” he said.
There are fears the policy could negatively impact inflation, which has only recently come down to the low end of the Reserve Bank’s 2–3 per cent target range (currently 2.1 per cent).
[Related: Underlying inflation in RBA’s target band: Case for rate cut strong]
