The Federal Government has recently introduced significant reforms to student loans aimed at easing the financial pressure on Australians, particularly younger generations grappling with both higher education costs and the broader rise in living expenses. The measures include a 20% reduction in student debt and a more generous repayment threshold, providing meaningful relief to millions of Australians.

These changes go beyond symbolic gestures and will deliver tangible savings to those carrying student debt, an outcome that is expected to be far more effective than lifestyle adjustments often suggested outside of Parliament, such as forgoing café breakfasts.

20% Reduction in Student Debt

From 1 June 2025, a one-off 20% reduction will be applied to the balances of eligible student loans. This policy is expected to benefit over three million Australians, collectively reducing outstanding student debt by more than $16 billion.

The reduction will apply to a wide range of government-supported education loans, including:

• HELP loans (HECS-HELP, FEE-HELP, STARTUP-HELP, SA-HELP, OS-HELP)
• VET Student Loans
• Australian Apprenticeship Support Loans
• Student Start-up Loans
• Student Financial Supplement Scheme

How it works:

• The reduction will be calculated based on the loan balance as at 1 June 2025, before indexation is applied.
• Indexation will only apply to the reduced balance.
• The ATO will automatically process the reduction and adjust the indexation. No action is required from borrowers.
• Individuals will be notified once the adjustment has been made.

Special circumstances:

If you had a HELP debt recorded with the ATO on 1 April 2025 but subsequently repaid the loan in full after 1 June 2025, the reduction will generally create a credit in your HELP account. Where no other tax or Commonwealth debts exist, this credit will typically be refunded to you.

To estimate the impact of this measure, the Government’s HELP debt estimator is available online. If you require assistance in checking your eligibility or understanding your reduction amount, professional guidance can ensure you make the most of these changes.

Changes to Repayment Thresholds

In addition to reducing debt balances, the Government has also altered the repayment system to make it fairer and more affordable.

From the 2025–26 income year, the minimum repayment threshold will increase from $56,156 to $67,000. By comparison, the threshold was $54,435 in the 2024–25 year. This means compulsory repayments will now only apply to income above $67,000. Importantly, repayments will be calculated only on the portion of income above this threshold.

Repayments will continue to be administered through the tax system and assessed once individuals lodge their annual tax returns with the ATO.

What This Means for You

For many Australians, these reforms will provide greater disposable income in the short term, allowing households to better manage everyday expenses. However, this also means that student loans may take longer to clear unless voluntary repayments are made.

Those in a position to make extra contributions may still wish to consider voluntary repayments as a strategy to reduce long-term interest through indexation. For others, the breathing space provided by the higher threshold will be a welcome relief.

Final Thoughts

The combination of a 20% debt reduction and more flexible repayment arrangements represents one of the most significant reforms to student loans in recent years. This policy recognises the challenges faced by graduates and current students while also addressing the economic reality of rising living costs.

If you are unsure how these changes affect your situation, or whether voluntary repayments may still be beneficial in your case, it is advisable to seek tailored advice.

Need Help?

By working with us as your professional tax accountant and mortgage broker, you can be confident that your loans are structured to protect your tax position, maximise deductions, and avoid costly mistakes, giving you greater peace of mind and more control over your financial future.

Pitt Martin Group is a firm of Chartered Accountants, providing services including taxation, accounting, business consulting, self-managed superannuation funds, auditing and mortgage & finance. We spend hundreds of hours each year on training and researching new tax laws to ensure our clients can maximize legitimate tax benefit. Our contact information are phone +61292213345 or email info@pittmartingroup.com.au. Pitt Martin Group is located in the convenient transportation hub of Sydney’s central business district. Our honours include the 2018 CPA NSW President’s Award for Excellence, the 2020 Australian Small Business Champion Award Finalist, the 2021 Australia’s well-known media ‘Accountants Daily’ the Accounting Firm of the Year Award Finalist and the 2022 Start-up Firm of the Year Award Finalist, and the 2023 Hong Kong-Australia Business Association Business Award Finalist.

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This content is for reference only and does not constitute advice on any individual or group’s specific situation. Any individual or group should take action only after consulting with professionals. Due to the timeliness of tax laws, we have endeavoured to provide timely and accurate information at the time of publication, but cannot guarantee that the content stated will remain applicable in the future. Please indicate the source when forwarding this content.

By Zoe Ma @ Pitt Martin Tax