The repayment system changed, and it matters
Study loan repayments used to work as a cliff: cross a threshold and a percentage applied to your entire income, so a small pay rise could cost more than it delivered. That system is gone. Repayments are now calculated marginally, on the income above the threshold only.
For 2026-27 the minimum threshold is $69,528. Below it nothing is payable. Between $69,528 and $129,717 you repay 15 cents in each dollar above the threshold. Between $129,717 and $186,050 you repay $9,028 plus 17 cents in each dollar above $129,717. Above $186,050 the calculation reverts to 10% of total repayment income.
The practical effect is that a pay rise near a threshold no longer produces a perverse outcome. Someone earning exactly $70,000 repays about $71 for the year, not several thousand. Which is how the old whole-of-income rates behaved at the same point.
Repayment income is broader than your salary
The figure the ATO uses is repayment income, not taxable income. It is taxable income plus reportable fringe benefits, reportable employer superannuation contributions, net investment losses and any exempt foreign employment income.
That definition catches several groups by surprise. Someone salary packaging through a not-for-profit employer has reportable fringe benefits added back. Someone with a negatively geared investment property has the rental loss added back, so the loss reduces their income tax but not their study loan repayment. Someone salary sacrificing into super has those contributions counted too.
The upshot is that strategies which reduce income tax often do not reduce study loan repayments, and occasionally increase them. It is worth checking both effects before restructuring your pay.
Indexation, and the timing trap
Study loans do not charge interest. They are indexed each 1 June to preserve real value, at the lower of the consumer price index and the wage price index. A change made after a period of high inflation produced indexation that outpaced wages.
The trap is in the sequence. Compulsory repayments withheld from your pay during the year are not credited to the loan until your tax return is processed, typically months after 1 June. So indexation is applied to a balance that does not yet reflect a full year of repayments you have already made.
A voluntary repayment made before 1 June reduces the balance that gets indexed; the same payment made on 2 June does not affect that year's indexation at all. For anyone planning to pay a lump sum, the date is worth several hundred dollars on a typical balance.
Should you pay it off early?
Purely on cost, no. A study loan indexed at around CPI is the cheapest debt most Australians will ever hold. Every dollar directed at it could instead reduce a mortgage at six per cent, clear a credit card at twenty, or be invested. On expected returns, all three usually beat paying down an indexed loan.
The strong counter-argument is borrowing capacity. Lenders deduct your compulsory repayment from assessable income when calculating what you can borrow, and the effect is leveraged: on typical serviceability settings, removing a $4,000 annual repayment can lift borrowing capacity by tens of thousands. If you are applying for a mortgage within a year and your balance is small enough to clear, doing so can be worth far more than the balance itself.
The other honest reason is psychological. Some people function better without the debt, and a decision that keeps you consistent is worth something the spreadsheet cannot price. Just make it knowing the arithmetic rather than assuming the debt is expensive.
Moving overseas does not pause it
If you leave Australia intending to be away for six months or more, you must notify the ATO within seven days. Once overseas you lodge a worldwide income return each year, and if your worldwide income exceeds the repayment threshold, repayments continue.
Ignoring this does not make the obligation disappear. The balance continues to be indexed, assessments accumulate, and the ATO can pursue them when you return or lodge again. Several countries now have information-sharing arrangements that make non-disclosure a poor strategy.
The debt is written off on death and is not passed to your estate or your family, which is the one circumstance in which it genuinely disappears.
Questions people ask
- What is the HECS repayment threshold for 2026-27?
- $69,528 of repayment income. Below that no compulsory repayment is required, though the balance is still indexed on 1 June. Above it, repayments are calculated on the income above the threshold at 15 cents in the dollar, rising to a higher tier above $129,717.
- Is HECS debt indexed or does it charge interest?
- Indexed, not interest-bearing. Each 1 June the balance is adjusted by the lower of the consumer price index and the wage price index. The distinction matters: indexation preserves the real value of what you borrowed, whereas interest would charge you for the privilege of borrowing it.
- Does a HECS debt stop me getting a home loan?
- No, but it reduces how much you can borrow. The debt does not appear on your credit file and does not affect your credit score. Lenders instead subtract your compulsory repayment from the income they assess, which on typical settings reduces borrowing capacity by roughly ten times the annual repayment. Some lenders disregard a balance that will clear within twelve months.
- When should I make a voluntary repayment?
- Before 1 June, if you make one at all, because that is when indexation is applied. A payment made in late May reduces the balance that gets indexed; the same payment in June misses the whole year. Whether to make one is a separate question. Usually higher-interest debt should be cleared first.
- What happens to my HECS debt if I never earn above the threshold?
- Nothing is ever compulsorily repaid, and the balance continues to be indexed each June. Study loan debt cannot be pursued through bankruptcy proceedings and is written off when you die. It does not become a claim against your estate or your family.
Sources
- ATO: Tax rates for Australian residents. Income tax brackets for 2026-27
- ATO: Study and training loan repayment thresholds and rates. HELP repayment thresholds and the marginal repayment system
- ATO: Medicare levy surcharge income thresholds and rates. Surcharge tiers for singles and families
- ATO: Super guarantee and contribution caps. SG rate 12% and the maximum contribution base