The Australian government’s promise to cut student loan debts by 20% has now become law. If you’re one of more than three million Australians who have a student loan, you’re probably wondering what this means for you and when you’ll see the benefits.
The Universities Accord (Cutting Student Debt by 20 per cent) Act 2025 became law on 3 August 2025. The change isn’t just about HECS-HELP loans – the 20% reduction applies to all types of student loans, including VET Student Loans, Australian Apprenticeship Support Loans, and even older schemes like the Student Financial Supplement Scheme. Combined with previous changes that capped loan indexation, the government says this measure will remove around $20 billion in total student debt.
If you had an outstanding student loan debt on 1 June 2025, you’re eligible. The reduction is calculated on your debt balance as it stood on that date, before the annual indexation was applied. Even if you’ve made payments since June or completely paid off your loan after that date, you’ll still receive the full 20% reduction based on what you owed on 1 June.
Here’s where it gets interesting: if you’ve already paid off your loan since 1 June, the 20% reduction might actually put your ATO account into credit, potentially resulting in a refund to your bank account (provided you don’t have other tax debts owing).
If you’d already paid off your student loan completely before 1 June 2025, unfortunately you won’t benefit from the 20% reduction. The relief only applies to debts that existed on that date.
The ATO is responsible for applying the change, and is currently updating its systems to process these reductions. Most people should see their 20% reduction applied before the end of 2025, though some complex cases might not be completed until early 2026.
You don’t need to do anything to receive the reduction – it will be applied automatically. The ATO will notify you when it’s been processed, and you’ll be able to see your new lower balance through your myGov account or the ATO app.
Keep in mind that it’s important you don’t delay lodging your tax return while you wait for the change in your loan balance to appear in your MyGov account. There’s no benefit in waiting, and you should continue with your normal tax obligations.
Remember to update your bank details with the ATO if you’re expecting a potential refund, and if your loan gets paid off completely, don’t forget to tell your employer to stop withholding additional amounts from your pay. You need to fill out a Withholding declaration to do this, either through your MyGov account or by downloading and printing a form from the ATO website to give to your employer.
There’s more good news beyond the debt reduction. From the 2025–2026 financial year, you won’t need to make any compulsory repayments unless your income exceeds $67,000 (up from $54,435 in 2024–2025), and importantly, repayments are now only calculated on income above that threshold, not your total income.
For many people, this will mean smaller repayments or no compulsory repayments. If you’re an employee, you should start seeing less tax withheld from your pay once your employer updates to the new tax tables, giving you more money in your pocket each payday.
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/20-reduction-student-loan-debt