Student loan debts: what you need to know about the latest changes

If you are one of the more than three million Australians with a student loan, there is some welcome news. The Government has introduced a significant one-off reduction to student loan balances, along with changes to how compulsory repayments are calculated. For many people, these updates could reduce their overall debt and lower their annual repayments going forward.

The 20% debt reduction: how it works

A 20% reduction to eligible student loan balances is now being applied, with the ATO having commenced processing these reductions.

The reduction is calculated based on your student loan balance as at 1 June 2025, before indexation was applied. The 2025 indexation amount is then recalculated using the reduced balance.

As a simple example, if your balance was $27,600 on 1 June 2025, a reduction of around $5,520 may be applied to your loan.

Which loans are included?

The 20% reduction applies across a wide range of student loans, including:

• HELP loans (such as HECS-HELP, FEE-HELP, STARTUP-HELP, SA-HELP and OS-HELP)

• VET Student Loans

• Australian Apprenticeship Support Loans

• Student Startup Loans

• Other eligible student support loans

Do you need to do anything?

No action is required for most people.

Many reductions were expected to be applied before the end of 2025. However, if your circumstances are more complex, processing may extend into early 2026.

Once the ATO applies the reduction, you should receive a notification via SMS, email, or your myGov inbox.

Importantly, you should continue lodging your tax return as normal. There is no advantage in delaying lodgment, as the reduction is based on your loan balance as at 1 June 2025.

Could you receive a refund?

In some cases, the reduction may result in your loan account moving into credit. If that happens, you may be entitled to a refund.

If you have any outstanding tax liabilities or other Commonwealth debts, the ATO will generally apply the credit to those amounts first. Any remaining refund should then be paid to your nominated bank account, so it is worth confirming your bank details are up to date.

Changes to repayment thresholds from 1 July 2025

From 1 July 2025, there have also been major changes to compulsory repayment thresholds and how repayments are calculated.

For the 2025–2026 income year, the minimum repayment income threshold has increased to $67,000, up from $54,435 in 2024–2025.

This means many Australians will not be required to make a compulsory repayment until they earn above the new threshold.

A new marginal repayment system (and why it matters)

Compulsory repayments are now calculated using a marginal repayment system, rather than being based on your entire repayment income once you cross the threshold.

In practical terms, this means you only repay a percentage on the part of your income above $67,000, rather than on your full income.

For example, someone earning $70,000 may save approximately $1,300 per year compared to the previous repayment calculation method. If your repayment income is $179,286 or more, your compulsory repayment remains 10% of your total repayment income, meaning higher-income earners should not be disadvantaged by the change.

2025–2026 repayment thresholds and rates

Repayment income	Repayment on this income
$0 – $67,000	Nil
$67,001 – $125,000	15 cents for each $1 over $67,000
$125,001 – $179,285	$8,700 plus 17 cents for each $1 over $125,000
$179,286 and over	10% of your total repayment income

Tax implications to be aware of

These changes may also affect your tax position.

Employees (PAYG withholding)

If you are an employee, your employer may withhold less tax from your wages towards student loan repayments under the new rules. If too much has already been withheld during the year, the excess may be refunded when you lodge your 2026 tax return, provided you have no outstanding tax debts or other Commonwealth liabilities.

Tax instalments

If you pay tax through instalments, these changes generally will not be reflected until 1 July 2026. Any overpaid amounts during the 2025–2026 year may then be refunded as part of your 2026 assessment (again, assuming there are no outstanding debts).

Need help?

If you have any questions about how the 20% student loan reduction applies to you, whether you may be entitled to a refund, or how the new repayment thresholds could affect your tax outcome, please contact our team.