'This is now going to happen': Millions of Aussies will have their debt slashed soon

The federal government's promised legislation to slash HECS debts by 20 per cent has now passed in the Senate.

Labor introduced the student debt cuts as a first order of business when parliament resumed this month and it passed today 36 votes to three.

Three million Australians are set to benefit from the bill, with $5,520 wiped from the average debt of $27,600.

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So when exactly will HECS balances be slashed?

Education Minister Jason Clare said it may take "a bit of time" for Australians with a HECS debt to see the difference in their balance.

"The next step is for the tax office to do the work they need to do. Now that the bill has passed, they've got the certainty they need to make the changes to their systems to pass this on to three million Australians," Clare said.

"That will take a bit of time. They've got to write about 50,000 lines of code to implement this and make sure that they get it right.

"But this is now going to happen. It's guaranteed. And it will be backdated to 1 June this year, before indexation happened."

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The bill will also raise the minimum threshold from $54,435 to $67,000 and reduce minimum repayments.

It will mean someone earning $70,000 will pay back $1300 less per year.

"Getting an education shouldn't mean a lifetime of debt," Prime Minister Anthony Albanese said today.

"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."

In a short video posted on X last week, Albanese said the legislation would be introduced to parliament as a matter of priority..https://x.com/AlboMP/status/1947750263307309071

"We said it would be the first thing that we do and today we're making it happen," he said.

"We're introducing our legislation to cut your student debt by 20 per cent. No application, no forms, just real help with your student debt."

This will impact your student debt balance if you have one and, eventually, your pay.

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Now the legislation has passed, the Australian Tax Office (ATO) will apply the 20 per cent reduction and it will be calculated on what that person's debt was as of June 1, 2025.

"It'll take a lot of weight off the shoulders of a lot of young Australians who are just out of uni … looking to move out of home or save up to get a mortgage," Clare said last week.

"You don't start paying off your university degree until your degree starts to pay off for you."

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How will it all work?

"The ATO will automatically apply the 20 per cent reduction to your outstanding debt and retrospectively adjust any indexation applied to your debt," CPA Australia's business lead Gavan Ord told 9news.com.au.

"No action is required from individuals. The government will notify you when the changes are implemented, and balances can be checked via myGov."

This reduction will be applied on top of any repayments made throughout the year after your tax return is completed.

Ord said Australians should avoid listening to financial advice from online influencers about how to optimise their tax returns.

"We urge Aussies not to follow misleading advice from social media 'finfluencers' suggesting you delay lodging your tax return," he said.

"Lodging your return is a legal responsibility and essential for accurate assessment."

What happens if my HECS debt is finally paid off?

Compulsory HECS repayments aren't allocated to your debt until after you have lodged your tax return.

After this, it might mean your debt has reached the all-important zero balance.

It means you will no longer see the compulsory repayments taken out of your weekly, fortnightly or monthly pay.

You'll need to let your employer know about this though, as it won't automatically stop.

It involves filling out a tax form called a "withholding declaration", which indicates to your employer that you no longer have a HECS debt.

It's as simple as ticking the box "no" on the form when it asks if you have a higher Education Loan Program (HELP), VET Student Loan (VSL), Financial Supplement (FS), Student Start-up Loan (SSL) or an Australian Apprenticeship Support Loan (AASL) debt.

Once your employer stops withholding extra tax, your next paycheck may slightly increase.

This amount will vary depending on your salary and what your regular contributions were.

You have to be earning above the threshold for it to impact your pay.

Australian taxpayers earning between $54,435 and $62,850 pay one per cent on their income and the figure rises the more you earn.

"Another proposed change to HECS is raising the income threshold at which people are required to start repaying their debt from $54,435 to $67,000, starting 1 July 2025, subject to the law being changed," Ord added.

"This means that if you earn less than $67,000, you won't need to make repayments, although voluntary repayments remain an option.

"This change also means your repayments will be lower."

If you've overpaid your HECS debt throughout the previous financial year, the ATO will take this into account and it will be refunded to you when you lodge your tax return.

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