If you are one of the 3 million Australians carrying a HECS-HELP student loan, you have probably felt the sting of indexation. In June 2023, debts were indexed by a whopping 7.1% — the highest rate in the scheme's history — adding thousands of dollars to balances overnight. The backlash was fierce, and the government has finally responded with a meaningful reform. Here is everything you need to know.
What Changed?
Following the Universities Accord review led by Professor Mary O'Kane, the government legislated changes to how HECS-HELP debts are indexed. The key reform is simple but powerful: from 1 June 2023 onwards, indexation will be calculated at the lower of CPI or the Wage Price Index (WPI).
Previously, HECS debts were indexed exclusively to CPI. This meant that during periods of high inflation — like 2022 and 2023 — student debts ballooned even though wages were not keeping pace. The new formula ensures your debt can never grow faster than wages, which is a fundamentally fairer approach.
Crucially, the change is retrospective. The government applied the lower WPI rate back to the June 2023 indexation event, effectively wiping out the excess indexation that caused so much outrage. For the June 2023 event, the WPI was 3.2% compared to the CPI of 7.1% — meaning affected borrowers had approximately 3.9 percentage points of indexation reversed.
How Much Could You Save?
The savings depend on the size of your debt and how long you have left to pay it off. Let us work through some examples.
If you had a $30,000 HECS debt on 1 June 2023, the original 7.1% indexation added $2,130 to your balance. Under the new WPI-based calculation at 3.2%, the indexation would have been just $960 — a saving of $1,170. That amount has been credited back to affected borrowers.
For someone with a larger $60,000 debt (common for law, medicine, or engineering graduates), the retrospective saving doubles to approximately $2,340. And the ongoing benefit compounds year after year: every time CPI exceeds WPI in the future, your debt grows more slowly under the new formula.
Over a typical 10-year repayment period, Treasury estimates the reform will save the average borrower between $4,500 and $7,200 in total indexation charges. That is real money that goes towards paying down the principal rather than being swallowed by inflation adjustments.
Understanding HECS-HELP Repayment Thresholds
The indexation change does not affect how repayments work — only how fast your debt grows. You still repay through the tax system once your income exceeds the minimum repayment threshold, which for FY2025-26 sits at $54,435.
The repayment rates are progressive, starting at 1% of your total income at the threshold and rising to 10% for incomes above $151,201. Here is a simplified breakdown:
- $54,435 to $62,850: 1.0% of total income
- $62,851 to $66,620: 2.0%
- $66,621 to $70,618: 2.5%
- $70,619 to $78,258: 3.0%
- $78,259 to $86,399: 3.5%
- And so on up to 10% for incomes above $151,201
It is important to note that these repayments are based on your total repayment income, not just your salary. This includes things like investment income, rental income, and net capital gains. Use our HECS-HELP calculator to see exactly how much will be withheld from your pay each fortnight based on your income.
Should You Make Voluntary Repayments?
This is one of the most common questions in Australian personal finance, and the indexation change shifts the calculus significantly. Under the old CPI-only system, when inflation was running at 7%, there was a strong argument for paying down your HECS debt faster — a guaranteed 7% "return" on your money was hard to beat.
With indexation now capped at the lower of CPI or WPI, the effective interest rate on your HECS debt is likely to sit between 2% and 4% in most years. At those levels, you are almost certainly better off investing any spare cash elsewhere — even a high-interest savings account returning 5% would outperform voluntary HECS repayments.
The exception might be if you are close to a repayment threshold boundary and want to reduce your balance to lower your mandatory repayment percentage. Our salary calculator can help you model how HECS repayments affect your take-home pay at different income levels.
Impact on Graduate Take-Home Pay
For a recent graduate earning $70,000 with a $40,000 HECS debt, the compulsory repayment is 2.5% of their total income — that is $1,750 per year, or about $67 per fortnight withheld from their pay. Combined with income tax, Medicare Levy, and super contributions, the take-home pay on a $70,000 salary with HECS comes to approximately $1,040 per week.
The indexation reform does not change that weekly take-home figure, but it does mean the $40,000 balance is shrinking faster in real terms because less is being added each June. Under the old system, a $40,000 debt indexed at 5% adds $2,000 while you repay $1,750 — meaning your balance barely moves. Under the new system with WPI at 3%, the indexation is just $1,200, so your net repayment is actually $550 per year. That is the difference between treading water and making genuine progress.
Check the exact impact on your pay using our HECS-HELP calculator, which factors in the latest thresholds and rates.
What Still Needs to Change
While the indexation reform is welcome, advocates argue there is more to do. The National Union of Students has called for the repayment threshold to be lifted to $75,000, arguing that forcing graduates earning $55,000 to make repayments while navigating high rents and living costs is counterproductive.
There are also calls to cap the total amount a student can be charged for their degree, particularly for courses like medicine and dentistry where HECS debts can exceed $100,000. And the ongoing discrepancy between Commonwealth Supported Places and full-fee courses continues to draw criticism.
The Bottom Line
The HECS-HELP indexation reform is one of the most significant improvements to Australia's student loan system in decades. By capping indexation at the lower of CPI or WPI, the government has ensured that student debts can never again spiral out of control during inflationary spikes. The retrospective application is a bonus that has already put money back in borrowers' pockets.
If you are carrying a HECS-HELP debt, take a few minutes to review your balance through myGov, check your repayment rate against our HECS-HELP calculator, and reconsider whether voluntary repayments still make sense under the new, lower indexation rates. For most people, the answer will be to invest elsewhere and let the compulsory system do its job.