How HECS repayments work
Compulsory HECS-HELP repayments are not optional once your repayment income clears the threshold. The ATO works out the amount through the tax system, rather than asking you to make separate loan repayments during the year.
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, the ATO reconciles the estimate against your actual repayment income. If payroll withheld too little, you pay the shortfall when you lodge. If it withheld too much, the excess comes back as part of your assessment.
The part people miss: HELP repayments are based on repayment income, not just taxable income. That figure can add back items such as reportable fringe benefits, total net investment losses, and employer super contributions above the SG rate. Salary sacrificing to super does not automatically lower what the ATO uses for HELP. If that interaction is relevant for you, it is worth reading the salary sacrifice guide alongside this page.
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 beforeyour 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 |
|---|---|---|
| 2024-25 | 3.2% | 1 June 2025 (closing 2024-25) |
| 2023-24 | 4.0% | 1 June 2024 (closing 2023-24) |
| 2022-23 | 3.2% | 1 June 2023 (closing 2022-23) |
| 2021-22 | 3.9% | 1 June 2022 (closing 2021-22) |
On a $50,000 debt, 3.2% indexation adds $1,600 to your balance on 1 June. That is why the timing of repayments and the size of the remaining balance still matter.
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.
For most people, this is an opportunity-cost decision rather than a tax strategy. Start with three questions: what indexation is likely to apply, what else you would do with the cash, and whether you have higher-priority uses for that money such as an emergency buffer or expensive debt.
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
- →A savings or investment return above 3.2% can leave you better off
- →You have other high-interest debt (credit cards, personal loans)
Example: On a $30,000 HELP balance, 3.2% indexation would add about $960 on 1 June. If the same cash could earn more than that after tax, there is a fair argument for keeping the money invested and letting compulsory repayments do the work.
20% HELP debt reduction (from 1 June 2025)
The Australian Government legislated a 20% reduction to all HELP, VET Student Loan, and other study/training support loan balances, backdated to 1 June 2025. This is applied automatically — no action is required on your part.
Factor this reduction into any voluntary repayment decision — your balance may already be significantly lower than expected.
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.
Bonuses are one of the most common reasons for this gap, because the same payment can change PAYG withholding, HELP repayment income, and sometimes MLS at once. If that is the source of the surprise, the bonus tax guide walks through how the one-off payment is treated.
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.
If you want to see where HELP sits beside ordinary income tax, Medicare levy, and other payroll deductions, the broader Australian income tax guide lays out the full picture.
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. Indexation applied on 1 June 2025 (closing the 2024-25 year) was 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. Note: the Australian Government legislated a 20% reduction to all HELP loan balances, backdated to 1 June 2025. Whether paying off early makes sense depends on whether the HECS indexation rate (3.2% applied 1 June 2025) 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.
