The Australian government has taken a major step toward easing the burden of student debt, passing legislation that delivers a one-off 20% reduction in outstanding student loans. This reform will benefit around three million Australians with Higher Education Loan Program (HELP) debts, vocational education and training (VET) loans, and apprenticeship loans.

Key changes at a glance

One-off 20% debt reduction

If you have a HELP or eligible student loan as of 1 June 2025, you can expect an automatic 20% reduction in the outstanding balance. No action is required—the Australian Taxation Office (ATO) will apply the reduction directly. For someone with the average debt of $27,600, this equates to a saving of $5,520. Those with higher debts could see over $12,000 wiped.

Higher repayment threshold

From the 2025–26 financial year, the minimum income at which compulsory loan repayments kick in will rise from $54,435 to $67,000. This is designed to offer more breathing room to lower-income earners and recent graduates still finding their financial footing.

Fairer repayment structure

Under the new system, repayments will only be calculated on the portion of income above the $67,000 threshold, rather than on total income. This marginal system ensures repayments better reflect a person’s capacity to pay.

Indexation cap retained

The reforms build on earlier changes that cap the indexation of student loans to the lower of either the Consumer Price Index (CPI) or the Wage Price Index (WPI). This ensures that student debts won’t grow faster than wage growth, improving long-term repayment affordability.

What happens next?

Although the legislation has passed, Australians are being urged to be patient while the changes are implemented. The ATO will need to update its systems—a process expected to take some time. Once your debt has been adjusted, you’ll receive a notification via text message.

What does this mean for businesses?

While the changes are primarily aimed at individual borrowers, employers may also benefit indirectly. Employees with less financial stress tend to be more productive and engaged. Additionally, payroll teams will need to stay informed about the new repayment thresholds and how they apply from the 2025–26 year onwards.

For any business clients navigating employee payroll adjustments or individuals seeking clarity on how this impacts their financial planning, our advisory team is here to help.

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Need guidance on what these changes mean for you or your business? Contact our team for personalised support.