If the last thing you read about HECS was written before 2025, throw it out. The system has been rebuilt twice in two years, and most of the advice circulating online describes rules that no longer exist.
That matters, because HECS interacts with almost every other decision you make on a rising income: how much super to contribute, whether to buy a home, and where a spare dollar should go. Several of those interactions work in ways that surprise people.
Where things actually stand
Three changes reshaped the scheme.
A one-off 20% reduction was applied automatically to every outstanding study loan balance held on 1 June 2025, before that year’s indexation. On an average debt of around $27,600, that removed roughly $5,520. If you have not looked at your balance since then, check myGov, because the number in your head is almost certainly wrong.
The repayment system became marginal from 1 July 2025. Under the old rules, crossing a threshold applied a single rate to your entire income, so a $1 pay rise could cost hundreds. Now it works like income tax brackets, and only income above the threshold is charged.
Indexation is capped at the lower of CPI or the Wage Price Index, a change made after the 7.1% shock in 2023. The rate applied on 1 June 2026 was 2.8%.
For the 2026-27 income year, the year you are earning in now, the threshold is $69,528, up from $67,000. Above that you repay 15 cents in the dollar to $129,717. Above that, $9,028 plus 17 cents in the dollar to $186,050. Above $186,050, the repayment is 10% of your total repayment income.
On $80,000, that means a compulsory repayment of about $1,571 for the year, roughly $30 a week. Under the old system the same income attracted considerably more.
The definition that catches people out
Compulsory repayments are not calculated on your taxable income. They are calculated on your repayment income, which is a broader figure.
Repayment income is your taxable income plus reportable fringe benefits, plus reportable superannuation contributions, plus net investment losses, plus exempt foreign employment income.
Read that list again, because it quietly undoes several strategies people attempt.
Salary sacrificing into super does not reduce your HECS repayment
This is the single most common misconception on this topic, and it is held confidently by a lot of people on rising incomes.
The logic seems sound. Salary sacrifice reduces your taxable income, and HECS is calculated on income, so sacrificing should reduce the repayment. It does not, because reportable superannuation contributions are added straight back when repayment income is worked out. That includes both salary sacrifice arrangements and personal contributions you claim a deduction for.
The same applies to negative gearing. Net investment losses are added back, so a rental loss does not lower your HECS repayment either. And salary packaging arrangements, common in health and not-for-profit roles, are added back as reportable fringe benefits, which is why packaging can push a repayment up rather than down.
None of this makes salary sacrifice a bad idea. It still reduces your income tax, and contributing to super early is one of the highest-value things a person on a rising income can do, given the compounding runway. Just do it for the tax and retirement benefits, not in the expectation of a smaller HECS repayment. Our article on super contribution strategies covers where those contributions actually pay off.
Is HECS worth paying off early?
For most people, it is the last debt to worry about, and the reasoning is straightforward.
HECS carries no interest. It is indexed, most recently at 2.8%, which is dramatically lower than almost any other borrowing you will have. There are no repayments while your income is below the threshold, which protects you during study, parental leave, a career break or unemployment. It does not appear as a default on your credit file. And it is written off on death rather than being recovered from your estate.
Compare that to a credit card at 20%, a personal loan at 10%, or a mortgage at whatever you are currently paying. Every one of those costs more. Directing spare money at HECS while carrying any of them is a straightforward loss.
Against long-term investing or super, the comparison is closer but usually still points away from HECS. Money in super grows in a concessionally taxed environment over decades. Clearing a debt indexed at 2.8% is a guaranteed 2.8% return, which is real but modest.
There is a legitimate counterargument, and it is not purely financial. Some people want the thing gone, and the cash flow freed up by removing a compulsory repayment is genuinely useful. If clearing it lets you sleep and it is not displacing higher-value uses of the money, that is a defensible choice. Just make it knowingly rather than by default.
If you are going to make a voluntary repayment, timing matters
The voluntary repayment bonus was abolished in 2017, so there is no discount for paying early. The only benefit is reducing the balance.
But the timing does matter, because of a mechanical quirk worth understanding.
Indexation is applied on 1 June each year to debt that has been outstanding for more than 11 months. Critically, the compulsory repayments withheld from your pay across the year are not credited against your balance as they are withheld. They sit as tax credits and are applied when your return is processed, which happens after 1 June.
So you can spend a full year having money taken from every payslip, and still be indexed on a balance that does not reflect any of it. That is not an error, it is how the system works, and it explains why people look at their balance in June and feel like they are going backwards.
A voluntary repayment made before 1 June, on the other hand, reduces the balance that indexation is calculated on. If you intend to make one, making it in May rather than July is worth doing.
The withholding mismatch on a rising income
Your employer withholds an estimated amount each pay period if you have told them about your study loan. They cannot see your balance, and they are estimating from your pay with them alone.
That creates problems in exactly the situations that come with a growing career. A large bonus, a mid-year pay rise, a second job, investment income or contract work can all push your actual repayment income above what your employer’s withholding assumed, leaving a bill at tax time. The reverse also happens, and people who leave a job partway through the year sometimes find they had money withheld against an obligation that never arose.
If your income is variable or rising fast, put something aside for this rather than being surprised by it. And if you have more than one job, be aware that neither employer is withholding with knowledge of the other.
HECS and buying a home
A HECS debt does not appear on your credit file as a default, but it does reduce your net income, and lenders assess serviceability on what you actually take home.
Treatment varies between lenders, and some will look more favourably at a small balance close to being repaid than at a large one. If you are close to buying and close to clearing the debt, it is worth asking your broker specifically how your lender treats it before deciding whether to pay it out. The answer differs enough that a general rule is not much use.
What is generally true is that clearing a large HECS balance purely to improve borrowing capacity is an expensive way to buy a slightly bigger loan, since the money leaves your deposit to do it.
Situations worth planning for
Going overseas. If you move abroad, you retain a reporting obligation on your worldwide income once you are a non-resident for a sustained period, and repayment obligations can continue. This is frequently ignored and creates unpleasant catch-up assessments later.
A career break or parental leave. No compulsory repayment applies below the threshold, so a year out costs you nothing in repayments, though indexation continues on the balance.
Multiple study loans. HECS-HELP, FEE-HELP, SA-HELP, VET Student Loans and the rest are combined into a single balance for repayment purposes, assessed against one threshold.
Crossing the top band. Above $186,050, the calculation switches to 10% of your total repayment income. The bands are constructed so that this happens at the point where the marginal calculation reaches the same figure, so there is no cliff, and the effective rate on income above that point is lower than the 17% band beneath it.
Where HECS sits in the queue
Getting the order right is most of what financial planning does on a rising income. For most people, a sensible order for surplus money looks something like this.
Build a genuine emergency fund first, because everything else fails without one. Clear high-interest debt next, since nothing else returns 20%. Then make sure you are getting any employer contribution you are entitled to. Then decide between a home deposit, additional super and investing, based on your actual goals and timeframe. Voluntary HECS repayments come after all of that for most people, unless you have a specific reason.
How those priorities shift across your twenties, thirties and forties is a bigger question, and we work through it in our article on financial priorities in your 30s, 40s and 50s.
If you are trying to work out where a deposit sits against additional super, our comparison of investing inside or outside super covers the trade-off directly.
What to do this year
Check your actual balance in myGov, since the 20% reduction means it is probably lower than you think. Confirm your employer knows about the debt, so withholding happens through the year rather than arriving as a bill. If your income is rising or variable, set aside a buffer for the difference between withheld and actual. If you intend to make a voluntary repayment, do it before 1 June. And if you have been salary sacrificing partly to reduce your HECS, revisit that assumption, because it is not doing what you think.
Beyond that, HECS mostly deserves less attention than it gets. It is the cheapest debt most Australians will ever carry, and the energy spent worrying about it is usually better spent on the decisions that compound.
Getting advice early
The decisions that matter most on a rising income are made in your late twenties and thirties, and they compound for decades. Getting the order right, between super, a deposit, investing and debt, is worth far more than optimising any one of them.
If you have never worked with an adviser, our guide to what happens in your first meeting sets out what the conversation covers and what to bring.
If you would like help working out what your particular order should be, our financial planning in Adelaide service is built around exactly that question. Get in touch and we are happy to have the conversation
Frequently asked questions
What is the HECS repayment threshold for 2026-27?
The threshold is $69,528, up from $67,000 in 2025-26. Above it you repay 15 cents for each dollar to $129,717, then $9,028 plus 17 cents in the dollar to $186,050, and above that the repayment is 10% of your total repayment income. Since 1 July 2025 the system has been marginal, so only income above the threshold is charged rather than a single rate on your whole income.
Does salary sacrificing into super reduce my HECS repayment?
No. Compulsory repayments are calculated on repayment income, which adds back reportable superannuation contributions, including both salary sacrifice and personal contributions you claim a deduction for. Reportable fringe benefits and net investment losses are also added back. Salary sacrifice still reduces your income tax and remains worthwhile on its own merits, but it will not lower what you repay on your study loan.
Should I pay off my HECS debt early?
Usually not as a priority. HECS charges no interest and is indexed at the lower of CPI or wage growth, most recently 2.8%, which is far cheaper than almost any other debt. There are no repayments below the threshold, and the balance is written off on death. Clearing higher-interest debt, building an emergency fund and contributing to super generally produce a better outcome, though some people reasonably choose to clear it for peace of mind.
When is the best time to make a voluntary HECS repayment?
Before 1 June. Indexation is applied on 1 June to debt outstanding for more than 11 months, and a voluntary repayment made beforehand reduces the balance that indexation applies to. There has been no voluntary repayment bonus since 2017, so reducing the indexed balance is the only benefit.
Why did my HECS balance go up even though I made repayments all year?
Because compulsory amounts withheld from your pay are not credited to your balance as they are withheld. They are held as tax credits and applied when your tax return is processed, which occurs after indexation is applied on 1 June. So your balance can be indexed without reflecting a year of repayments. It is how the system operates rather than an error.
Was the 20% HECS reduction applied automatically?
Yes. It applied to all outstanding study and training loan balances held on 1 June 2025, before that year’s indexation, and required no application. On an average debt of around $27,600 it removed roughly $5,520. Check myGov to confirm the reduction is reflected in your balance.
Does HECS affect my ability to get a home loan?
It does not appear as a default on your credit file, but the compulsory repayment reduces your net income, which lenders consider when assessing serviceability. Treatment varies between lenders, and a small balance close to being repaid is often viewed differently from a large one. Ask your broker how your specific lender treats it before deciding whether to pay it down for this reason.
General advice warning. This article contains general information only and does not take into account your objectives, financial situation or needs. It is not tax advice. HECS thresholds and rates are indexed annually and the figures quoted are for the 2026-27 income year. Please confirm current rates with the ATO and seek personal financial and taxation advice before acting on any of it.
