In a major win for cost-of-living relief, the Albanese government has passed legislation to reduce student debts by 20%—delivering on a key election promise and providing welcome financial relief for more than three million Australians.
What’s Changing?
- 20% debt reduction: The Australian Taxation Office (ATO) will automatically reduce HELP, VET, and apprenticeship loan balances by 20%. The reduction applies to the debt amount as at 1 June 2023, before indexation was applied.
- Increased repayment threshold: The income threshold for compulsory student loan repayments is increasing from $54,000 to $67,000, allowing graduates to retain more of their earnings before repayments begin.
- Lower annual repayment costs: For example, someone earning $70,000 per year will now pay approximately $1,300 less annually toward their student debt.
How much will you save?
- Average HELP debt: Approximately $27,600.
- Typical reduction: Around $5,520 per person.
- Total relief: Roughly $16 billion in student debt is expected to be wiped under this measure.
Who benefits?
Anyone with an eligible HELP-related debt—such as HECS-HELP, FEE-HELP, VET Student Loans, or Australian Apprenticeship Support Loans—as at 1 June 2023 will automatically receive the 20% reduction. No action is required. Those who fully repaid their debt after indexation may be eligible for a refund, provided they have no outstanding government debts.
Why this matters
The policy was a central part of Labor’s May 2025 federal election campaign, aimed particularly at younger Australians grappling with rising living costs. With crossbench and Greens support, the legislation passed the Senate despite initial opposition from the Coalition. Some Coalition senators have since signalled interest in further reform, including a potential cap on future indexation.
While the reduction is significant, many financial experts point out that the real benefit may be closer to 8% once indexation is factored in. Nonetheless, the policy marks the most substantial student debt relief Australia has seen in decades.
When will it take effect?
The ATO is now updating its systems to implement the changes. Australians with affected student loans can expect to receive a text notification once their account has been adjusted. This is expected to occur by the end of 2025.
What’s next?
This legislation may be just the beginning. Further reforms to degree pricing, funding allocation, and student contribution levels—especially in response to the Job-Ready Graduates program—are being considered under the government’s broader Universities Accord initiative.
Key facts at a glance
| Item | Details |
|---|---|
| Cut-Off Date | 1 June 2023 (pre‑indexation balances) |
| Eligible Debts | HELP, VET, FEE-HELP, Apprenticeship Loans |
| Automatic Application | Yes – via the ATO |
| Average Individual Saving | Around $5,520 |
| New Repayment Threshold | $67,000 (up from $54,000) |
| Estimated Total Debt Reduction | $16 billion |
At q4 financial, we recognise that financial clarity begins with knowing how changes in government policy affect your day-to-day life. This debt reduction is a timely boost for many Australians and could help improve savings capacity, borrowing power, and overall financial wellbeing.
If you’d like to understand how this change could impact your financial plan, debt strategy, or long-term goals, our team is here to help.
