Guide — updated May 2026
HECS/HELP Explained
How your student debt works, when you must repay, how indexation grows the balance, and how to decide whether paying it off early makes financial sense.
How HECS-HELP works
HECS-HELP is an income-contingent student loan — the government pays your university fees upfront, and you repay through the tax system once your income crosses the minimum threshold. Unlike a bank loan, there is no interest rate. Instead, the outstanding balance is indexed annually to the Consumer Price Index (CPI), keeping the real value of the debt constant in line with inflation.
Repayments are not a fixed monthly amount. They are a percentage of your taxable income, withheld by your employer alongside income tax. The rate starts at 1% at the minimum threshold and rises to 10% for incomes above $159,664.
2025–26 repayment rates
Rates applied to total taxable income. Source: ATO 2025–26.
The indexation problem
HECS indexation is applied on 1 June each year to whatever balance remains. When CPI is high — as it was in 2022 and 2023 — the balance can increase by thousands of dollars in a single day, potentially more than the repayments you made all year.
Important
Should I pay off HECS early?
HECS has no traditional interest rate — only indexation. So the question is simply: can you earn more than the indexation rate on the money elsewhere?
When CPI is 7%, HECS debt grows at 7%/year — significantly outpacing a savings account at 4%. Voluntary repayment makes sense. When CPI is 2.4% and your mortgage offset earns an effective 6.5%, paying extra off your mortgage is more valuable than paying HECS.
Decision framework
If HECS indexation > savings account rate
Pay extra HECS voluntarily
If HECS indexation > mortgage rate
Pay extra HECS before mortgage
If HECS indexation < mortgage rate
Extra money into mortgage offset first
If HECS indexation < ETF expected return
Invest the difference long-term
Use the HECS payoff calculator to see your current repayment trajectory and how much faster you could clear the debt with voluntary contributions.
HECS and your tax return
Your employer deducts HECS alongside income tax — but they base the withholding on your salary alone. If you earn additional income (rental income, dividends, freelance), your total taxable income may be higher than your employer knows. The ATO calculates repayments on total income and reconciles at tax time.
Tip
Frequently asked questions
When do I have to start repaying HECS?
Repayments start when your income crosses the minimum repayment threshold — $54,435 in 2025–26. Repayment rates start at 1% of your total income and increase as your income rises, reaching 10% at incomes above $159,664. Repayments are calculated on your taxable income (including investment income), not just your salary.
Is HECS indexed?
Yes. Your HECS debt is indexed annually on 1 June by the Consumer Price Index (CPI). In June 2023, indexation hit 7.1% — adding thousands of dollars to existing balances. In 2024 it was 4.7%. The government capped indexation at CPI or the Wage Price Index (whichever is lower) from 2025, and retrospectively reduced some 2023 and 2024 indexation. For 2025, indexation was around 2.4%.
Should I pay off my HECS early?
It depends on the interest rate environment. HECS is indexed to CPI — not a fixed interest rate. When CPI is high (5–7%), your debt grows faster than a high-interest savings account, making voluntary repayment attractive. When CPI is low (2–3%), parking extra money in a mortgage offset or ETFs typically outperforms paying HECS early. The decision is purely mathematical: compare the HECS indexation rate against your best alternative return.
Does HECS affect my tax refund?
Yes. If your employer hasn't withheld enough HECS through the year — common when you start a new job mid-year or earn extra income — the ATO adds the outstanding HECS to your tax bill, or deducts it from your refund. You can ask your employer to withhold additional HECS by submitting a Withholding Declaration. The HECS payoff calculator can estimate your annual repayment obligation so there are no surprises.
Does HECS affect my borrowing capacity for a home loan?
Yes. Lenders include your mandatory HECS repayment in their serviceability calculations, which reduces how much they'll lend. A $40,000 HECS debt at $80,000 income costs roughly $2,240/year in repayments — reducing your annual available cash for mortgage servicing. This can reduce your borrowing capacity by $30,000–$50,000 depending on the lender. Some people consider paying down HECS before buying a home specifically to maximise their borrowing capacity.
What happens to HECS if I move overseas?
From 2017, Australians living overseas must still make HECS repayments if their worldwide income exceeds the minimum threshold. You report your income to the ATO annually via a non-lodgement advice or overseas levy assessment. The repayment rates are the same as for Australian residents. Ignoring this obligation accumulates debt and penalties.