A Guide to the 20% Cut in Student Loans
The Australian Government’s promise to cut student loan debts by 20% has officially become law. If you’re one of the more than three million Australians with a student loan, you’re probably wondering what this means for you—and when you’ll see the benefits.
What’s Changing?
The Universities Accord (Cutting Student Debt by 20 per cent) Act 2025 commenced on 3 August 2025. The 20% reduction applies to all types of student loans, not just HECS-HELP. This includes:
- VET Student Loans
- Australian Apprenticeship Support Loans
- Older schemes like the Student Financial Supplement Scheme
Combined with earlier changes that capped loan indexation, the government estimates this new measure will wipe around $20 billion in total student debt.
Who Gets the 20% Reduction?
To be eligible, you must have had an outstanding student loan as of 1 June 2025. Here’s how it works:
- The 20% reduction is based on your loan balance as at 1 June, before any annual indexation was applied.
- You’ll still receive the full 20% reduction, even if you’ve made payments since June or paid off the loan after that date.
- If you paid off your loan in full after 1 June, the reduction could place your ATO account into credit—possibly resulting in a refund to your bank account (assuming no other tax debts).
- However, if you paid off your loan before 1 June, you won’t receive the 20% reduction. It only applies to debts that existed on that specific date.
When Will You See the Changes?
The ATO is currently updating its systems to process the reductions. Here’s what to expect:
- Most people will see the 20% reduction applied before the end of 2025
- More complex cases may take until early 2026
- You don’t need to take any action—the reduction will be applied automatically
- The ATO will notify you once it’s processed
- You’ll be able to see your updated loan balance via myGov or the ATO app
- Important: Don’t delay lodging your tax return while waiting for your loan balance to update. Continue with your normal tax obligations.
Also, if you’re expecting a refund, make sure your bank details are up to date with the ATO.
If your loan is paid off completely due to the reduction, don’t forget to tell your employer to stop withholding extra repayments. You can do this by submitting a Withholding Declaration, either via your myGov account or by downloading the form from the ATO website and giving it to your employer.
What About Repayments?
There’s more good news. Starting from the 2025–26 financial year, repayment thresholds are changing:
- You won’t need to make compulsory repayments unless your income exceeds $67,000 (up from $54,435 in 2024–25)
- Repayments are now calculated only on the income above that threshold, not your total income
- You don’t need to take any action—the reduction will be applied automatically
- The ATO will notify you once it’s processed
- You’ll be able to see your updated loan balance via myGov or the ATO app
For many people, this means smaller repayments—or no repayments at all.
If you’re employed, you should notice less tax withheld from your pay once your employer updates to the new tax tables—meaning more money in your pocket each payday.
Final Thoughts
This 20% reduction is a significant win for students and graduates. Whether it reduces your debt or gets you a refund, it’s a welcome relief at a time when every dollar counts.
Stay on top of your ATO notifications, make sure your details are current, and enjoy the benefits coming your way.