How to Pay Off Your HECS Debt in Australia

In Australia, many individuals carry what is known as a HECS debt, a financial obligation incurred to fund higher education. This system is designed to make tertiary education accessible by allowing students to defer their tuition fees.

Understanding HECS Debt and Repayment Thresholds

HECS-HELP is an income-contingent loan provided by the Australian Government to eligible students in Commonwealth Supported Places. It covers student contribution amounts, with the government paying fees directly to institutions and students repaying the deferred amount. HECS debt does not accrue interest but is subject to annual indexation on June 1st. This adjustment maintains the debt’s real value by aligning it with changes in the cost of living, based on the lower of the Consumer Price Index (CPI) or the Wage Price Index (WPI). For instance, recent indexation rates were 3.2% for 2023 and 4.0% for 2024, with a 3.2% indexation for 2025.

Repayment obligations are triggered once an individual’s “Repayment Income” (RI) exceeds a specified threshold. Repayment Income differs from taxable income and is a comprehensive measure calculated by the Australian Taxation Office (ATO), including taxable income, net investment losses, reportable fringe benefits, reportable super contributions, and certain exempt foreign employment income. For the 2024-25 financial year, the minimum repayment income threshold is $54,435, while for the 2025-26 financial year, this threshold is set to increase to $67,000. This adjustment means individuals will need to earn more before compulsory repayments begin.

The rate at which HECS debt is repaid is progressive, meaning it increases as an individual’s Repayment Income rises. Historically, these rates have ranged from 1% to 10% of the Repayment Income. From July 1, 2025, a new marginal repayment system will be introduced, where repayments are calculated only on the portion of income earned above the threshold, rather than on the entire Repayment Income. For example, an individual earning $70,000 in the 2025-26 financial year would repay approximately $450, calculated as 15 cents for each dollar above the $67,000 threshold. This change aims to reduce the repayment burden for lower-income earners.

Compulsory Repayments Through the Tax System

Compulsory repayments of HECS debt are primarily managed through the Australian taxation system. When an individual is employed and has a HECS debt, they are required to inform their employer. This notification enables the employer to withhold additional tax from each pay period under the Pay As You Go (PAYG) withholding system.

Amounts withheld by an employer are not direct repayments applied to the HECS debt at the time of withholding. They are additional tax amounts collected by the ATO. The actual compulsory repayment is calculated and applied as a lump sum after the individual lodges their annual income tax return. Therefore, the HECS debt balance displayed on an individual’s account will not reflect these withheld amounts until the tax assessment process is complete.

The ATO determines the precise compulsory repayment amount based on the individual’s total Repayment Income for the year, as confirmed through their tax return. If the total income exceeds the minimum repayment threshold, a compulsory repayment is triggered. If an individual has multiple income sources, their employer may not withhold enough tax to cover the full HECS liability. In such cases, a top-up payment may be required when lodging their tax return to avoid an outstanding tax bill. Failure to lodge a tax return when earning above the repayment threshold can result in penalties.

Making Voluntary Repayments

Individuals with HECS debt have the option to make voluntary repayments at any time, which are distinct from the compulsory repayments collected through the tax system. These additional payments can help reduce the overall loan balance more quickly and potentially mitigate the impact of annual indexation, as indexation is applied to the remaining debt balance. However, voluntary repayments do not reduce or offset any compulsory repayment an individual may still be required to make based on their income.

Voluntary repayments can be made through ATO online services via a linked myGov account, which provides payment reference numbers for electronic transfers. Other common payment channels include BPAY, credit card, or direct credit. Allow at least four business days for processing, especially if aiming for the payment to be applied before the annual June 1st indexation date. This ensures the payment is registered prior to indexation calculation, potentially reducing the amount to which indexation is applied. Voluntary repayments are applied directly to the loan balance upon processing and are generally non-refundable.

Managing Your HECS Account and Information

Effectively managing a HECS debt involves regularly accessing and understanding your account information. The primary portal for this is ATO online services, accessed via your myGov account. This displays a summary of government loans, including the current HECS debt balance.

Besides viewing the current balance, ATO online services provide a detailed repayment history, including voluntary and compulsory repayments once applied. Official statements and indexation breakdowns are also accessible. Keeping personal details, such as contact information, up-to-date with the ATO is important and can be done through the myGov platform. For those who prefer direct interaction, the ATO also provides telephone services where individuals can inquire about their HECS balance and other loan-related information.