If you're among the more than three million Australians with a student loan, there's welcome news that could significantly lighten your financial load. A major debt reduction has been rolled out, alongside changes to how and when you repay your loan. Understanding these changes could put thousands of dollars back in your pocket and reduce your annual repayments.
The Australian Government's legislation to reduce student loan debt by 20% is now being applied, with the ATO having commenced processing the reductions.
The 20% reduction is applied to your student debt balance as at 1 June 2025, before indexation was applied, with the 2025 indexation recalculated on the reduced debt amount. This means if you had a debt of $27,600 on that date, approximately $5,520 will be wiped from your balance.
The reduction applies to all types of student loans, including:
HELP loans (including HECS-HELP, FEE-HELP, STARTUP-HELP, SA-HELP and OS-HELP);
VET Student Loans;
Australian Apprenticeship Support Loans;
Student Startup Loans; and
other student support loans.
The good news is that you don't need to take any action. Most people were due to receive their reduction before the end of 2025; however, more complex reductions may not be processed by the ATO until early 2026. The ATO will notify individuals when it has applied the 20% reduction to their loan account, with the notification sent via SMS, email or your myGov inbox.
You should continue to lodge your tax returns as usual. There's no benefit in delaying lodgment, as the reduction is based on your debt balance as at 1 June 2025.
If your loan account is in credit after the reduction is applied, you may receive a refund. If you have outstanding tax or other Commonwealth debts, the ATO will apply your credit to these debts first. Your refund will then be sent to your nominated bank account, so make sure your bank details are up to date to avoid any delays.
From 1 July 2025, significant changes have been made to how student loan repayments work. The minimum repayment income needed to make a compulsory repayment has increased to $67,000 for the 2025–2026 income year (from $54,435 in 2024–2025).
Compulsory repayments have moved to a marginal repayment system, meaning they’re only calculated on the part of your income above $67,000 (instead of your total repayment income). This is a significant change that will reduce annual repayments for most people. For example, someone earning $70,000 will save approximately $1,300 per year in repayments.
If your repayment income is $179,286 or more, your compulsory repayment will continue to be 10% of your total repayment income, meaning you won't be worse off because of the shift to marginal rates.
2025–2026 repayment thresholds and rates
| Repayment Income | Repayment on this Income |
| $0 - $67,000 | Nil |
| $67,001 - $125,000 | 15c for each $1 over $67,000 |
| $125,001 - $179,285 | $8,700 plus 17c for each $1 over $125,000 |
| $179,286 and over | 10% of your total repayment income |
These changes have important tax implications. If you're an employee, you may have less tax withheld from your pay towards a compulsory repayment. Any additional amounts already withheld may be refunded to you when you lodge your 2026 tax return, provided you have no outstanding tax or other Commonwealth debts.
If you pay tax in instalments, these changes won’t be applied until 1 July 2026. You'll receive any extra tax you paid in the 2025–2026 income year as a refund in your 2026 tax assessment, if you have no outstanding debts.