The ATO Has Commenced Reducing Student Loans in 2025

This year, the Australian Taxation Office (ATO) announced several significant updates affecting HELP (formerly HECS), VET Student Loans and other study and training support debts. From 1 June 2025, all outstanding eligible student and training loans will receive a 20% reduction. If you have multiple loan types, each one will be reduced individually.

These changes may impact your debt balance, compulsory repayment obligations and your 2026 tax return.

Here’s how it works:

• The 20% cut applies to your debt balance as at 1 June 2025, before indexation.
• 2025 indexation is recalculated after the reduction.
• Most reductions will be processed before the end of 2025, with more complex cases finalised in early 2026.
• You don’t need to apply. The ATO will automatically process the reduction and notify you via SMS, email or myGov.

What do I need to do next?

Check your details!

Ensure your contact details and bank account information are up to date with the ATO so you don’t miss notifications or refunds.

You can do this via your MyGov account.

What if the reduction pushes my loan account into credit?

If the 20% reduction results in your loan account going into credit, the ATO may process a refund to your nominated bank account.

Refunds are separate to the reduction process, and will mostly be issued by January 2026. If you have any outstanding debts with the ATO, your refund will be used to offset these amounts.

If you made a compulsory repayment to your loan after 1 June 2025, your tax return may be amended before the refund is issued.

Compulsory Repayment Thresholds from 1 July 2025

The compulsory repayment system for student and training support loans will shift significantly in the 2025/26 financial year.

Key changes:

• The minimum income threshold increases to $67,000 (increased from $54,435 in 2024/25).
• Repayments will now be calculated using a marginal repayment system, meaning only income above $67,000 is used to calculate your obligation.
• Individuals earning $179,286 or more will continue to pay 10% of total repayment income.
• Thresholds and rates will continue to be indexed annually in line with average weekly earnings.

Under this new rule, an individual earning $80,000 p.a. could see their compulsory repayment drop from $2,800 to as low as $1,950, saving them $850 for the year.

This means that most loan holders will benefit from lower compulsory repayments. Some will no longer meet the threshold at all.

What else do I need to know?

If you’re an employee with a student or training support loan, your employer may withhold less tax, increasing your take-home pay. Any excess tax withheld will be refunded when you lodge your 2026 return (assuming you have no outstanding debts).

If you pay tax in instalments:

• Changes won’t apply until 1 July 2026.
• You may receive credits back in your 2026 assessment.
• You can vary instalments if needed, chat to us today to find out more.

If you make voluntary repayments, you can continue to do this at any time to reduce your debt faster.

I’m still a little confused, can you help me?

Just like any long-term financial plan, small adjustments can have a big impact over time. Reduced debt, higher thresholds and a refined repayment system all work together to make student loans more manageable and give you greater control over your financial future.

If these updates feel a little overwhelming or you’d simply like help understanding what applies to you, you don’t have to navigate it alone.

At BIS Cosgrove, we provide clear, practical guidance tailored to your situation. We help you make sense of legislative changes and create clear strategies that support your long-term financial goals. Get in touch with one of our expert accountants or advisers today.

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_{^{The material and contents provided in this publication are general and informative in nature only. It is not intended to be advice and you should not act specifically on the basis of this information alone. If expert assistance is required, professional advice should be obtained}}.