Proposed changes to HELP loans could mean lower repayments in 2025

If you're one of the millions of Australians with a Higher Education Loan Program (HELP) debt, you might be wondering how the government's proposed changes to HELP loans could affect you. These changes are subject to the passage of legislation, but are proposed to take effect by 1 June 2025. The government says they are designed to provide relief and make the repayment process more manageable.

HELP debt 20% reduction

One of the most significant aspects of the proposed changes is a one-off 20% reduction in all HELP debts. This reduction would be automatically applied by the ATO before the annual indexation on 1 June 2025. For example, if you have an average HELP balance of $27,600, you could expect a reduction of approximately $5,520 in your debt. This initiative aims to ease the financial burden on over 3 million Australians, potentially saving more than $16 billion in student loan debt overall.

Changes in repayment thresholds and rates

From 1 July 2025, the minimum income threshold for making compulsory HELP repayments is proposed to increase from $54,435 to $67,000. This means you’ll only start repaying your HELP debt once your income exceeds $67,000. While the new repayments will be calculated only on the income above this threshold, the rates will be higher compared to the current system. Here's a look at the proposed new marginal repayment rates:

• income below $67,000: no repayment required;
• income between $67,001 and $124,999: 15 cents for each dollar over $67,000; and
• income above $125,000: $8,700, plus 17 cents for each dollar over $125,000.

Example

Let’s consider an example of someone with a HELP debt who’s earning $80,000 per year. Under the current system for 2024–2025, they would repay $2,800. However, with the proposed changes for 2025–2026, their repayment would be calculated only on their income above $67,000. This means:

• 2025–2026 income subject to repayment: $80,000 – $67,000 = $13,000; and
• repayment rate: 15 cents per dollar over $67,000; so
• total repayment: $13,000 × 0.15 = $1,950.

This would result in a reduction of $850 in their annual repayment, providing them with more take-home pay.

Indexation rate adjustments

Another crucial change is the proposed capping of the HELP indexation rate. Once the legislation is passed, the indexation rate will be the lower of either the consumer price index (CPI) or the wage price index (WPI). This adjustment will be backdated on all existing HELP, VET student loans, and other similar accounts from 1 June 2023. This means that if your HELP balance was indexed based on the CPI in 2023 and 2024, the ATO will adjust your account to reflect the lower indexation, potentially providing a refund if your balance falls below zero.

What this means for you

These proposed changes, if passed by Federal Parliament, could significantly impact how and when you repay your HELP debt. By increasing the repayment threshold and lowering the overall debt through a 20% reduction, these reforms aim to improve your financial situation. For many, this will translate to more money in take-home pay and less stress about managing student debt.

Source: www.ato.gov.au/individuals-and-families/study-and-training-support-loans/study-and-training-loans-what-s-new 
www.education.gov.au/higher-education-loan-program/resources/making-student-repayments-fairer