How HECS repayments work
HECS-HELP repayments are compulsory — you don't choose whether to make them. Once your income exceeds the minimum repayment threshold, the ATO requires you to repay a portion of your debt each year through the tax system.
Repayments are collected via the PAYG withholding system. When you start a new job, your Tax File Number declaration form asks whether you have a HECS-HELP debt. If you tick yes, your employer includes an additional withholding amount in each pay cycle to cover your estimated annual repayment. Your employer does not see your debt balance — they only know you have a debt.
At tax time, your actual income for the year is assessed. If your employer withheld too little (e.g. because you had multiple jobs or received a bonus), you'll owe the shortfall when you lodge your return. If too much was withheld, you'll receive a refund.
Important: HECS repayments are calculated on your repayment income — which includes your taxable income plus reportable fringe benefits, total net investment losses, and employer super contributions above the SG rate. Salary sacrificing to super does not reduce your HECS repayment income.
2025-26 repayment thresholds — new marginal system
From 1 July 2025, Australia introduced a significant change to how HECS repayments are calculated. The old percentage-of-income system has been replaced with a new marginal repayment system — similar in concept to how income tax brackets work. You only repay on income above each threshold, not on your total income.
| Repayment Income | Annual Repayment |
|---|---|
| Below $67,000 | $0 — no repayment required |
| $67,001 – $125,000 | 15c per $1 over $67,000 |
| $125,001 – $179,285 | $8,700 + 17c per $1 over $125,000 |
| $179,286+ | 10% of total repayment income |
Source: ATO — Repaying your HECS-HELP debt. Applies from 1 July 2025.
Example: On an income of $90,000, your HECS repayment is 15c × ($90,000 − $67,000) = 15c × $23,000 = $3,450. Under the old system, you would have paid a fixed percentage of your entire $90,000 income.
Key change from previous years: The new marginal system means crossing a threshold no longer causes a large jump in repayment amount on your entire income. This removes the previous "cliff effect" where earning $1 more could mean owing thousands more in repayments.
2024-25 repayment rates (previous year)
For reference, the 2024-25 system used a percentage-of-income approach with a lower threshold of $54,435. Under that system, your repayment was calculated as a fixed percentage of your total repayment income — not just the amount above the threshold.
| Repayment Income | Repayment Rate |
|---|---|
| Below $54,435 | 0% |
| $54,435 – $62,738 | 1% |
| $62,739 – $66,111 | 2% |
| $66,112 – $70,617 | 2.5% |
| $70,618 – $75,115 | 3% |
| $75,116 – $79,613 | 3.5% |
| $79,614 – $84,197 | 4% |
| $84,198 – $88,842 | 4.5% |
| $88,843 – $95,102 | 5% |
| $95,103 – $101,363 | 5.5% |
| $101,364 – $107,623 | 6% |
| $107,624 – $113,882 | 6.5% |
| $113,883 – $120,141 | 7% |
| $120,142 – $126,401 | 7.5% |
| $126,402 – $134,773 | 8% |
| $134,774 – $143,146 | 8.5% |
| $143,147 – $151,519 | 9% |
| $151,520 – $159,891 | 9.5% |
| $159,892+ | 10% |
These rates applied for the 2024-25 financial year only. The new marginal system applies from 1 July 2025.
HECS indexation
Your HECS-HELP debt is indexed to the Consumer Price Index (CPI) each year. This means your debt grows in line with inflation — even if you're making regular repayments.
Indexation is applied on 1 June each year, and it is applied to your outstanding debt before your repayments for the financial year are credited. This timing matters — your annual tax return repayment typically isn't processed until after 1 June, so you'll be indexed on the full pre-repayment balance.
| Year | Indexation Rate | Applied |
|---|---|---|
| 2025-26 | 3.2% | 1 June 2025 |
| 2024-25 | 4.0% | 1 June 2024 |
| 2023-24 | 7.1% | 1 June 2023 |
| 2022-23 | 3.9% | 1 June 2022 |
On a $50,000 debt, 3.2% indexation adds $1,600 to your balance on 1 June 2025. If you're not repaying fast enough, your debt can grow despite making regular payments.
Should you pay HECS off early?
You can make voluntary repayments to your HECS-HELP debt at any time via the ATO online services or myGov. These reduce your principal immediately and will lower your compulsory repayment amount in future years.
However, there is no bonus or discount for voluntary repayments. The 5% bonus that used to apply was removed in 2017. You simply reduce your debt dollar for dollar.
Whether it makes financial sense to pay off HECS early comes down to one comparison: the HECS indexation rate vs. the return you could earn elsewhere.
Pay off HECS early if...
- →Indexation rate exceeds your savings/investment return
- →You want the psychological benefit of being debt-free
- →You're applying for a mortgage and want to improve borrowing capacity
Invest instead if...
- →Your investment return exceeds the indexation rate
- →High-interest savings accounts (5%+) beat 3.2% indexation
- →You have other high-interest debt (credit cards, personal loans)
Example: You have a $30,000 HECS debt. At 3.2% indexation, that adds $960 to your debt on 1 June. If you put that $30,000 into a high-interest savings account at 5%, you'd earn $1,500 — more than the indexation cost. In this case, investing and letting compulsory repayments run their course makes more financial sense.
How HECS affects your tax return
HECS repayments are not a separate tax — they are collected alongside your income tax through the PAYG withholding system. Your employer must include additional withholding in each pay if you have indicated a HECS debt on your TFN declaration.
At the end of the financial year, the ATO calculates your actual repayment obligation based on your total repayment income. This is then compared to how much your employer withheld:
- →Under-withheld: You owe the difference when you lodge your return. This commonly happens when you have multiple jobs, received a mid-year pay rise, or forgot to tick the HECS box.
- →Over-withheld: You receive a refund. This can occur if your employer withheld based on a projected full-year income that was higher than your actual income.
All HECS repayments go directly to reducing your debt balance — they do not count as a tax deduction, and you cannot claim them as an expense.
Frequently asked questions
What is the HECS repayment threshold for 2025-26?
For 2025-26, the HECS-HELP repayment threshold is $67,000. Below this income you owe nothing. Above it, the new marginal system applies: 15c per $1 over $67,000 up to $125,000, then $8,700 + 17c per $1 over $125,000 up to $179,285, then 10% of total income above $179,285.
Does my employer know I have a HECS debt?
Your employer only knows you have a HECS debt if you tick the relevant box on your Tax File Number declaration form. If you do, they include an additional PAYG withholding amount in each pay cycle. They cannot see your actual debt balance.
When is HECS indexation applied?
HECS-HELP indexation is applied on 1 June each year. For 2025 (the 2025-26 financial year), the indexation rate is 3.2%. It is applied to your outstanding balance before your annual tax return repayment is credited.
Is there a benefit to paying off HECS early?
Voluntary repayments reduce your principal immediately, but there is no bonus or discount for early payment — that incentive was removed in 2017. Whether paying off early makes sense depends on whether the HECS indexation rate (3.2% in 2025-26) is higher than what you could earn investing that money elsewhere.
How does HECS appear on my tax return?
Your employer's PAYG withholding includes your estimated HECS repayment throughout the year. When you lodge your return, the ATO calculates your actual repayment obligation based on your total repayment income. Any difference between what was withheld and what you owe is either refunded or charged as a tax debt.