🎓 Proposed Changes to HELP and Student Loans
1. 20% Reduction in Student Loan Balances
The Australian Government has proposed a one-off 20% reduction on all outstanding HELP and other income-contingent student loans (such as VET Student Loans and Australian Apprenticeship Support Loans) that exist as of 1 June 2025. This measure is expected to benefit approximately three million Australians, reducing student debt by around $16 billion. For instance, a graduate with an average HELP debt of $27,600 would see a reduction of about $5,520.
Importantly, this reduction would be applied before the annual indexation on 1 June 2025, meaning the indexation would be calculated on the reduced loan balance. The government has committed to introducing this legislation as a priority when Parliament returns on 22 July 2025.
2. Increase in Minimum Repayment Threshold
Starting from 1 July 2025, the minimum income threshold for compulsory student loan repayments is proposed to increase from $54,435 to $67,000. This change means that graduates will not be required to make repayments until their income exceeds $67,000, providing additional financial relief.
3. Introduction of Marginal Repayment System
Alongside the increased threshold, a new marginal repayment system is proposed. Under this system, compulsory repayments would be calculated only on the portion of income above the $67,000 threshold, rather than on the entire income. This approach aims to make repayments more manageable and better aligned with an individual's ability to pay.
4. Change in Indexation Calculation
The method for calculating the annual indexation of student loans has been revised. From 1 June 2023, indexation is based on the lower of the Consumer Price Index (CPI) or the Wage Price Index (WPI), rather than solely on the CPI. This change has resulted in lower indexation rates:
3.2% for 2023 (reduced from 7.1%)
4.0% for 2024 (reduced from 4.7%)
This adjustment helps prevent student debts from growing faster than wages. Recredits have been applied for the 2023 and 2024 indexation rate changes.
💡 Considerations for Voluntary Repayments
If you're planning to make a voluntary repayment, it's advisable to consider the timing in light of the proposed 20% debt reduction. Making a voluntary repayment after 1 June 2025 could maximize the benefit of the reduction, as the 20% cut would apply to the loan balance before any voluntary repayments made after that date. However, if you make a voluntary repayment before 1 June 2025, it may reduce the amount eligible for the 20% reduction.
📌 Summary
20% Debt Reduction: Proposed one-off reduction on outstanding student loans as of 1 June 2025.
Higher Repayment Threshold: Increase from $54,435 to $67,000 starting 1 July 2025.
Marginal Repayment System: Repayments calculated only on income above $67,000.
Revised Indexation: Indexation based on the lower of CPI or WPI, resulting in lower rates.
These proposed changes aim to ease the financial burden on graduates and make the student loan repayment system more equitable. For personalised advice, consider consulting a tax professional or financial advisor.