The federal government is moving ahead with a 20% cut to outstanding HELP (formerly HECS) student loan debts, delivering financial relief to around 3 million Australians. The proposed legislation, introduced to parliament this week, is expected to pass with bipartisan support, though final approval may take several weeks.
Once passed, the Australian Taxation Office will apply the one-off reduction to any outstanding HELP debt as of June 1, 2025. This change is set to wipe out about $16 billion in student loans, with the average saving estimated at $5,500.

In addition to the debt cut, the government has also changed how HELP debts are indexed. Previously tied only to inflation, indexation is now calculated using the lower of either the Consumer Price Index (CPI) or the Wage Price Index (WPI). This change has already reduced indexation rates to 3.2% in 2023 and 4% in 2024, down from a peak of 7.1%.

Although HELP loans don’t accrue traditional interest, recent indexation spikes prompted more borrowers to make voluntary repayments. With these changes, many are expected to feel less pressure to prioritise HELP debt over other financial goals.

Another major concern for HELP debt holders is its impact on borrowing power. Because HELP repayments are factored into home loan serviceability assessments, even modest debts can reduce how much a bank is willing to lend. Mortgage brokers report that clearing HELP debt can increase borrowing capacity by over $50,000 in some cases.

As a result, many young Australians are weighing up whether to pay off their student loans early or focus on saving for a home deposit. Financial advisers say the right move depends on individual goals. Paying off HELP avoids future indexation but may miss out on potential investment returns, while saving or investing the same funds could yield higher gains over time. If you would like to discuss with a financial adviser or would like more information, please don’t hesitate to reach out.