The Albanese government is moving ahead with one of its most significant election promises — a sweeping reduction in student debt for millions of Australians. As federal parliament reconvenes, the Labor government is prioritizing legislation that will slash outstanding Higher Education Loan Program (HELP) debts by 20%. The bill is expected to pass with little resistance and could bring welcome financial relief to current and former students across the country.
The proposed legislation, which is scheduled to be introduced to parliament this week, includes two major components: a one-off 20% reduction in all eligible HELP debts, and a complete overhaul of the repayment thresholds and structure. Together, these reforms are projected to benefit around 3 million Australians, ranging from university graduates to vocational trainees.
HELP loans — which include HECS-HELP, FEE-HELP, VET Student Loans, and others — are income-contingent loans provided by the Australian government. These loans cover tuition costs and are repaid gradually through the tax system once a borrower’s income crosses a certain threshold. While these loans are interest-free, the outstanding balance is subject to annual indexation. This used to be tied to inflation (CPI), but legislation passed in the last term changed it to the lower of either CPI or wage growth.
If passed, the 20% discount will be automatically applied by the Australian Taxation Office (ATO) to all eligible HELP loans based on their value as of June 1, 2025. This means if your outstanding HELP loan is $30,000 on that date, your balance will be reduced by $6,000. Indexation for 2025 (which is 3.2%) will then be recalculated based on the reduced loan amount. The discount applies to any loan with a census date before June 1, 2025 — even if it hasn’t appeared yet on your ATO record. If you repaid your loan after June 1, you may be eligible for a refund. However, if your debt was cleared before June 1, you won’t benefit from the reduction or receive a refund.
In addition to the debt reduction, Labor’s proposal will revamp how student loan repayments are calculated. Currently, you start repaying once your income exceeds $54,435. Repayments are calculated as a fixed percentage of your entire income, not just the portion above the threshold. Under the new plan, the repayment threshold will rise to $67,000. Repayments will only apply to income above the threshold, not the full salary. A flat repayment rate of 15% will apply to the portion of your income between $67,000 and $125,000. For those earning above $180,000, repayments will remain similar to the current structure.
For example, if you earn $70,000: under the old system, you’d repay 2.5% of the full $70,000 — which is $1,750. Under the new system, you’d repay 15% of just $3,000 (the amount over $67,000) — which is $450. This progressive approach means lower repayments for middle-income earners and a fairer structure that could alleviate pressure on younger Australians entering the workforce.
Assuming the bill passes in the coming weeks — which appears likely — the changes will be applied within the current financial year (2025–26). Borrowers can expect their loan accounts to be adjusted automatically by the ATO later in the year.
Labor’s majority in the House of Representatives ensures easy passage in the lower house. In the Senate, support is likely either from the Coalition or the Greens. The Coalition previously opposed the idea but has signaled it may now back the bill. The Greens have expressed support for reducing student debt, although they may push for stronger reforms, including the complete elimination of indexation. Even without Coalition support, Labor may be able to pass the bill with Greens backing, especially if they agree to minor amendments.
This policy shift arrives amid growing national concern about the cost of living, stagnant wages, and increasing financial pressure on young Australians. HELP debts have been rising sharply in recent years, in part due to high inflation-driven indexation. Last year, student debt surged by 7.1% — the highest increase in decades — sparking widespread protests and calls for reform.
Labor’s move is being framed not only as financial relief but as a signal of its commitment to improving affordability in higher education and giving young Australians a better financial foundation. If you have a HELP loan, keep an eye on your ATO account over the coming months — and prepare to see a lighter debt load by year’s end.
