The Australian government is set to provide financial relief to students with the introduction of a HECS debt reduction plan, which is anticipated to reduce existing student loans by 20%. The Labor government committed to this initiative during the recent elections, aiming to support over three million Australians burdened by student debt. This legislative change is scheduled to be effective when Parliament reconvenes on 22 July.
Once passed, the Australian Tax Office (ATO) will automatically calculate the debt reduction based on balances as of June 1, 2025. Individuals will not need to take any action, as the ATO will adjust outstanding debts retroactively, including any applicable indexation. Notification of these changes will be provided, and individuals can monitor their updated balances through myGov.
Additionally, any compulsory repayments made by individuals during the financial year following the 30 June tax return will be accounted for in this reduction. Experts advise against heeding financial advice from social media influencers regarding tax-lodging strategies. Filing your tax return remains a legal obligation essential for accurate debt assessments.
Once a HECS debt is paid off, compulsory repayments cease, which can lead to an increase in take-home pay. However, individuals must inform their employers by submitting a “withholding declaration” form to indicate they no longer have HECS debt.
Next steps include a potential change in the repayment threshold, proposed to rise from $54,435 to $67,000 by July 1, 2025. This adjustment means that individuals earning below $67,000 will not be required to make repayments, although voluntary payments will still be permissible. For those who may have overpaid their HECS debt, the ATO will issue refunds upon tax return submissions.
This reform represents a significant change in the financial landscape for Australian students and graduates, providing substantial relief and easing living costs in the future.