Millions of Australians with student debt are seeing their loan balances reduced by 20 per cent, as the ATO begins automatically reducing around $16 billion in debt.
The federal government has confirmed that it has begun actioning its election and budget promise of implementing a 20 per cent one-off reduction to student loan balances – a measure that is expected to wipe nearly $16 billion in total debt for over 3 million Australians.
The move comes following the enactment of the Universities Accord (Cutting Student Debt by 20 per cent) Act – part of the very first bill to be introduced to the Parliament after the federal election – and is currently being implemented automatically by the Australian Taxation Office (ATO).
Eligible loans include HELP, VET Student Loans, Australian Apprenticeship Support Loans, and Student Start-up Loans.
The ATO began processing the debt cuts last month, and around 50 per cent of eligible students have already seen the reduction applied, with the majority of remaining reductions anticipated to be finalised before the end of 2025. (However, more complex cases may not see refunds until 2026.)
For an individual carrying the current average HELP debt of $27,600, the reduction equates to approximately $5,520 being removed from their outstanding balance, according to Treasury figures.
The benefit is backdated to 1 June 2025 – prior to the most recent indexation – to maximise relief.
This $16 billion reduction supplements $3 billion in debt already removed via earlier policy changes that capped the indexation rate for student loans to the lower of the wage price index or the consumer price index.
Additional structural reforms to the student loan repayment system have also been implemented. The minimum annual income threshold for compulsory repayments has been raised from $54,435 to $67,000 for the financial year 2026, and minimum repayment rates have been reduced.
Prime Minister Anthony Albanese commented: “Our Government promised to cut student debt, it was the first thing we did after the election in Parliament, and now we’re rolling it out.
“Getting an education shouldn’t mean a lifetime of debt. No matter where you live or how much your parents earn, my Government will work to ensure the doors of opportunity are open for you.”
Assistant Treasurer and Financial Services Minister Daniel Mulino added: “The ATO is rolling out the biggest cut to student debt in Australia’s history. It means billions wiped from the debts of young people when they need it. This will make a big difference as they get started in their lives.”
Minister for Education Jason Clare noted that this was “the biggest cut to student debt in Australian history” and means millions of young Australians will have “thousands of dollars taken off their back”.
Similarly, Minister for Skills and Training Andrew Giles said that the student debt reduction “means students and apprentices will have more money in their pocket and less stress to pursue qualifications for their future”.
Student debt in focus
The student debt relief measures follow a broader shift in how student loan debt is factored into home loan serviceability assessments, an area of significant concern for brokers and their clients.
Earlier in the year, the federal Treasurer directed the Australian Securities and Investments Commission (ASIC) and the Australian Prudential Regulation Authority (APRA) to update guidance on the treatment of student debt in serviceability calculations.
ASIC updated its guidelines in March and confirmed that lenders could apply more flexibility when assessing student debt compared to other consumer debts, with APRA finalising its new guidance in June.
Many lenders – including the Commonwealth Bank of Australia (CBA) and National Australia Bank (NAB) – confirmed changes to their treatment of student debt in quick succession. For example, CBA announced in April that it would exclude HELP debt from serviceability calculations for borrowers capable of repaying their debt within 12 months, while NAB said it would not include HELP debt repayments in home loan serviceability assessments for borrowers with a remaining debt of $20,000 or less from 31 July 2025.
These industry adjustments – combined with the new debt reduction and lower minimum repayment thresholds – are expected to provide greater access to credit and improved borrowing capacity for clients with existing student loans, particularly first home buyers.
The indexation and debt reduction measures will reduce total HELP and other student loan debt by around $20 billion.
While the move has been welcomed by brokers, many have suggested that the change will only have a minimal impact on home loan borrowers.
[Related: CBA changes its treatment of HELP debt]
