The federal government's legislation to wipe 20 per cent off everyone's student debt has passed parliament. Labor submitted it only last week, and it was quickly approved by the House of Representatives and the Senate.

The proposal was one of the party's big election promises, and it received enough support across the political spectrum to get the tick of approval. A poll of more than 3,000 Yahoo Finance readers found 51 per cent of people felt they would never fully pay off their HECS debts by themselves or without government support.

A person with an average loan of $27,600 will have around $5,520 taken off their total loan balance. The measure is estimated to cost $16 billion and will affect around three million people.

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Education minister Jason Clare thanked those who supported the proposal.

“Australians, I think, want us to work together on the big things that matter to help Australians, and particularly on the childcare matter where it could have been very different,” he said.

“The decision of [opposition leader] Susan [Ley] and Jonno [Duniam], the Shadow Minister, to work constructively with us, I take my hat off to them. This is what Australians want of us.”

One Nation senators Malcolm Roberts, Warwick Stacey and Tyron Whitten voiced their opposition to the bill after it was submitted and voted against it.

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How will the 20 per cent HECS debt reduction work?

It won't just apply to someone with a HECS debt.

The government revealed the legislation will also target those with Vocational Education and Training (VET) Student Loans, Australian Apprenticeship Support Loans, Student Startup Loans, and other student loans.

The reduction will be backdated to June 1, and it will apply to what your debt level was before this year's indexation was applied.

The 2025 indexation rate was 3.2 per cent, and this added about $882 to a $27,600 loan.

Clare said the Australian Taxation Office (ATO) will now have to “write about 50,000 lines of code" to usher in this huge change.

You won't have to do anything to access the savings, and it will eventually show on your account over the coming months once the system can be updated.

Legislation will also increase HECS repayment threshold

The government has also included a measure within the legislation that will provide further cost-of-living relief for thousands of Aussies.