Time to read : 3 Minutes
With the end of the financial year inching closer, a lot of Aussies are staring down their (often large) student loan debts and wondering: “Should I prioritise paying this debt… or keep chipping away at saving for a home deposit?”
Whether you make additional repayments to your student loan debt this year – and if so, when – requires more serious thought in 2025 than previous years. And that’s all thanks to the recent federal election.
What’s changing this year?
In November 2024, the federal government pledged to cut student loan debts by 20% if it won the next election.
“These changes will benefit more than three million Australians with a student loan and reduce approximately $16 billion of debt,” it said at the time. The government vowed to implement the reductions before the annual indexation would be applied on 1 June 2025 to various student loans:
HELP loans
VET Student Loans
Australian Apprenticeship Support Loans
Student Start-up Loans
Student Financial Supplement Scheme loans
With the government now re-elected, it is expected to quickly implement the measure given that 1 June is fast approaching.
Why is this relevant?
When this was announced, the government said the average HELP debt was $27,600. A 20% cut would slash $5,520 off that debt.
But, the overall savings will be much more for anyone with an outstanding debt. That’s because the amount written off will no longer be subject to indexation.
For example, based on the $5,520 average reduction, on 1 June 2025, that would have attracted indexation of 3.2% – adding $176.64 to the debt. So the saving in 2026 becomes $5,696.64 – if none were to be paid off.
Indexation that would have then been added in the following years, where the debt remained outstanding, sees the total savings increase even more. Over the past 10 years, indexation has varied between 1.5% and 4%.
Taking the lowest of these, the $5,520 average reduction in 2025 will have saved the debt holder at least $6,611.18 over the next decade (again, assuming nothing was paid off). Given the indexation rate will likely be higher than this, the savings will be worth even more.
So what this boils down to, is that the reduction can help many student debt holders to pay down the remaining balance faster. And by clearing the debt earlier, it could:
help you save more money
improve your borrowing capacity
get you on the property ladder sooner.
How it pays to hold off this year
Typically, making additional repayments on your student loan should be done before 1 June each year before the indexation kicks in. The idea being that by making the balance smaller, the indexation applied is less.
Yes, but… this year making an early repayment could be a false economy.
For example, let’s say you plan to make a $1,000 voluntary repayment. Making it before 1 June will save you $32 in indexation being applied. But if you make it before the 20% reduction is applied, you will have missed out on a $200 saving.
Be aware: a pay rise at work could impact the rate of your student loan repayments. It could see you go up one or more repayment brackets and – in extreme instances – actually see your take-home pay go down. This is most noticeable if your income increases above $54,435 (the threshold at which repayments begin).
So what other options have you got to avoid going up a repayment bracket? You may be financially better off with alternative rewards. Talk to your employer about:
additional superannuation contributions they could make
non-monetary perks
training for professional development
making additional student loan repayments on your behalf.
Bottom line
While we all love a discount, maximising the value of your student loan discount will depend on your own actions in the next week or so.
Be sure to do your numbers before making any decisions. Your financial adviser and accountant can help you see the full impact of moving money around and that’s peace of mind you won’t lose out.
Go deeper:
Could you get a home loan if banks stopped counting HECS debts?
Will 'loud budgeting' help you achieve your personal finance goals?
Disclaimer
The information in this article is of a general nature only and does not constitute personal financial or product advice. Any opinions or views expressed are those of the authors and do not represent those of people, institutions or organisations the owner may be associated with in a professional or personal capacity unless explicitly stated. Helen Baker is an authorised representative of BPW Partners Pty Ltd AFSL 548754.
