More than three million Australians with outstanding HECS-HELP loans will see their balances increase on June 1, as the Australian Taxation Office applies the annual indexation rate of 3.2%. For those with the average student debt of $27,600, this translates to an additional $882 added automatically to their loan. The change will occur despite the federal government’s announced plan to reduce loan balances by 20%, a measure that is not yet legislated.
The government has pledged to implement the 20% cut as the first piece of legislation introduced to the next Parliament following the election. If passed, the reduction would apply to all outstanding balances on June 1, ahead of the indexation. For someone with an average loan, this would represent a $5,520 cut. The initiative is part of a broader effort to provide cost-of-living relief through adjustments to education debt policy.
New Repayment Thresholds and indexation Cap
In addition to the planned debt reduction, the government will increase the minimum income threshold for student loan repayments from $54,000 to $67,000, effective July 1. This change would reduce the annual repayment burden for those earning under the new threshold. For example, someone earning $60,000 per year would save around $1,300 annually under the revised system.
The government also recently reformed how indexation is calculated. Rather than being tied solely to the Consumer Price Index (CPI), the new rule caps indexation at the lower of CPI or the Wage Price Index (WPI). This change has already impacted previous years’ rates: the 2023 increase was lowered from 4.7% to 4%, and the 2024 rate was reduced from 7.1% to 3.2%. These changes aim to moderate year-on-year increases in student debt.
HECS indexation amount for 3 million Australians revealed: 'Add $882' https://t.co/NNvckpKhla
— Yahoo Finance Australia (@YahooFinanceAU) May 26, 2025
Voluntary Repayment and Timing Considerations
Borrowers considering voluntary repayments before the June 1 indexation are being advised to evaluate their options carefully. The government has clarified that the 20% debt reduction will apply to outstanding balances on June 1, meaning repayments made before that date could reduce the amount eligible for the discount. As a result, the government suggests waiting until after indexation and the debt cut are applied to make voluntary contributions.
This advice is particularly relevant for those with smaller balances or plans to clear their debt in the near future. According to the official guidance, delaying a repayment could maximize the impact of the 20% reduction and result in a more favorable long-term outcome. Borrowers with concerns about how these changes affect their situation are encouraged to consult with the Australian Taxation Office or their loan provider for tailored advice.
