HECS-HELP changes in 2025: what every Australian graduate needs to know

The HECS-HELP rules changed dramatically on 1 July 2025 — the old "cliff edge" repayment system is gone. Most graduates pay less, indexation is fairer, and the strategy for paying it off has shifted.

By ECTD Editorial · Published 2026-05-02 · Updated 2026-05-02

If you have a HECS-HELP debt and earn over the threshold, the rules for what you owe each year changed dramatically on 1 July 2025. The new marginal-rate system is fairer, usually cheaper, and changes the maths on whether to pay extra. Here's exactly what changed, why, and what to do about it.

The old "cliff edge" system that everyone hated

Before 1 July 2025, HECS-HELP repayments used a flat percentage of your entire repayment income. So crossing a threshold by $1 could mean an extra $300 to $1,500 of compulsory repayment that year — a "cliff edge" effect.

For example, in 2024–25, the old system charged you 4% of everything if you earned $67,000+, then 4.5% of everything at $77,000+, and so on. Stepping from $66,999 to $67,000 added $2,680 to your tax bill that year. Stepping from $76,999 to $77,000 added another $385. The system punished people right at the salary points where they were getting their first or second pay rises.

It also created perverse incentives — staying just under a threshold for the whole financial year could save thousands. People genuinely turned down promotions to avoid crossing brackets.

The new marginal-rate system from 1 July 2025

Under the new rules, HECS-HELP works marginally — like income tax. You only pay a percentage of the income above each bracket floor, not the whole income.

The 2025–26 brackets are simple:

Under $67,000: No compulsory repayment
$67,000–$125,000: 15% of income above $67,000
$125,000+: 17% of income above $125,000 (plus the 15% on the bracket below)

A worked example: if you earn exactly $80,000, your repayment is 15% of $13,000 = $1,950. Under the old 2024–25 rules at the same income, you would have paid 4.5% of $80,000 = $3,600. The new system saved you $1,650 in this case.

For most graduates earning $70,000–$110,000, the new system saves $1,000–$3,000 per year compared to the old.

What hasn't changed

The new system changes how compulsory repayment is calculated. Plenty stays the same:

Repayment income still includes taxable income + reportable fringe benefits + reportable super + investment losses + foreign income.
Indexation still happens annually on 1 June, at the lower of CPI or Wage Price Index.
Voluntary repayments still go straight to the loan balance and reduce future indexation.
Employer withholding still happens during the year, with the actual repayment calculated at tax time.
HECS still isn't tax-deductible, even if your job requires the qualification.
HECS still affects home loan borrowing capacity — lenders treat the annual repayment as a fixed expense.

Indexation reform — the other big change

The other major HECS reform passed in 2024 changed how indexation is calculated. Indexation is what keeps your loan balance in real terms — it's applied each 1 June.

Until 2024, indexation used CPI (consumer price inflation) only. After the 2022–23 inflation spike, this hit graduates with a 7.1% indexation hit on June 2023 — easily wiping out a year's worth of repayments for many.

The reform changed indexation to the lower of CPI or Wage Price Index (WPI), retroactively applied to 2023 and 2024. Many graduates received a credit on their HECS account in 2024 representing the indexation refund.

Under the new approach, recent indexation rates have been:

2023: 3.2% (was 7.1% before reform)
2024: 4.0% (was 4.7% before reform)
2025: ~3.5% (estimated based on June WPI)

Should you make voluntary repayments?

Under the new system, the maths on voluntary repayments has shifted. The case for paying extra is weaker than it used to be.

Why pay extra

Reduce indexation: any payment made before 1 June reduces your balance before indexation hits. If you have $20,000 of HECS and pay $5,000 voluntarily on 30 May, you save indexation on that $5,000 (typically $150–$200 in current conditions).
Improve home loan capacity: banks treat your HECS repayment as committed expenses. Reducing the balance to under one year of repayment can sometimes allow lenders to ignore it entirely (worth asking your broker).
Psychological win: some people simply prefer being debt-free, even when the maths is borderline.

Why not pay extra

Indexation is now around 3–4%, well below what you can earn in a high-interest savings account (4–5%) or expect from long-term super (~7%).
HECS doesn't accrue compound interest like a normal loan — it only goes up by indexation each year.
Forced repayment is automatic, so you can't over-borrow against it the way you might with consumer debt.
Other debts may have higher rates — credit cards (20%+), personal loans (10–15%), and even some home loans (~6%) all charge more than HECS indexation.

A simple rule of thumb: Pay extra to HECS only if (1) you have no other higher-interest debt, (2) you have a fully-funded emergency fund, and (3) you're already maxing out tax-effective options like salary sacrifice into super. Otherwise, the money is usually better deployed elsewhere.

How HECS affects your home loan

This is the part most graduates underestimate. Lenders treat your annual HECS repayment as a fixed monthly expense — exactly like a credit card minimum payment or a personal loan repayment.

For a $90,000 income, the ~$3,450 annual HECS repayment can reduce your maximum borrowing by $35,000–$70,000 depending on the lender. On a $1m purchase, that can be the difference between approval and rejection, or between a 5% and 10% deposit.

Different lenders treat HECS differently. Some are strict (treat the full annual repayment as a permanent commitment). Others are flexible (ignore HECS if your remaining balance is small). A specialist broker who knows the lender market can save you tens of thousands of borrowing capacity here.

Common HECS questions

Does HECS show up on my pay slip?

Yes. If your income is over the threshold, your employer withholds an extra amount from each pay (in addition to PAYG income tax). This is shown as "HELP" or "HECS" in your withholding section. The amount withheld during the year is reconciled with your actual compulsory repayment when you lodge your tax return.

Can I claim HECS as a tax deduction?

No. HECS-HELP repayments are not tax-deductible — even if your job requires the qualification. This is settled tax law and a common point of confusion. The course fees themselves may sometimes be deductible as self-education if directly tied to your current work, but HECS repayments aren't.

What happens if I move overseas?

You still owe the debt and still need to repay if your worldwide income exceeds the threshold. Australians overseas must report their foreign income to the ATO each year for HECS purposes. Indexation still applies. The government has been more aggressive about pursuing this since 2017.

Does HECS pass to my estate?

No. HECS-HELP debt is wiped on death — it's not collected from the estate. This is one of the things that makes it more like a tax than a normal loan.

What's repayment income exactly?

It's your taxable income plus several add-backs:

Reportable fringe benefits (e.g. salary packaging like novated leases, FBT-exempt or otherwise)
Reportable super contributions (salary sacrifice above your standard employer contribution)
Net investment losses (negative gearing)
Net foreign-source income
Total foreign income

It's a broader measure than just your salary, designed to stop people artificially reducing their taxable income (e.g. through salary packaging) to avoid HECS repayments.

The bigger picture

The 2024–25 HECS reforms are the most significant changes to the scheme since it was introduced in 1989 (then known as HECS, with HELP added in 2005). The new marginal system is fairer, the indexation reform is genuinely meaningful, and most graduates are net winners.

But HECS still hits hard at the moments people can least afford it — early in careers, when you're also trying to save a deposit, manage rent, and build a life. Understanding exactly what you owe and how it compares to your other financial choices is the first step to making smart decisions about it.

General information only — not personal financial, tax, legal or medical advice. Consider your own situation and consult a licensed professional before acting. Figures are current as at the date shown above.