Three million Australians with student loan debt will see their balances automatically increase this week when the government’s yearly indexation is applied. HECS-HELP loans get indexed every year on June 1, and this will still apply despite plans to cut debts by 20 per cent.

Unpaid HECS-HELP loans will increase by 3.2 per cent on Sunday, the Australian Taxation Office (ATO) has confirmed. For the average $27,600 debt, this will add about $882 to their loan.

The federal government is planning to cut 20 per cent off all student loan debts that exist on June 1, before indexation is applied. This has not yet been legislated, but Prime Minister Anthony Albanese said it would be the “first piece of legislation” introduced into the new parliament following the election.

RELATED

• Tax cuts, HECS debts, Medicare boost: All the major cost-of-living relief coming for millions of Aussies

• $3 million superannuation tax change sparks property warning as 'panic’ selling begins

• Most in-demand tradie jobs paying nearly $3,200 per week amid crisis: 'Shining a light'

The move would wipe $16 billion in debt across HELP, VET Student Loan, Australian Apprenticeship Support Loan and other income-contingent student support loans.

For someone with the average $27,600 debt, they would see around $5,520 wiped from their outstanding loans.

The government also plans to increase minimum income thresholds from $54,000 to $67,000 from July 1.

Are you worried about your HECS debt? Contact tamika.seeto@yahooinc.com to share your story

This would mean someone earning $60,000 would pay around $1,300 less per year in repayments.

Last financial year, HECS debt increased by 4 per cent following changes to the way indexation is calculated.

Indexation is now capped at whichever is lowest of the Consumer Price Index (CPI) or Wage Price Index (WPI).

This was backdated to June 1, 2023, lowering last year’s 4.7 per cent rise to 4 per cent and the previous year’s 7.1 per cent hike to 3.2 per cent.

Should I make a voluntary repayment before June 1?

This will ultimately depend on your individual financial situation.

The government said it’s worth taking into account the upcoming 20 per cent HECS debt reduction when making your decision.

The reduction will only apply to debt balances as at June 1, so if you make a repayment beforehand, you will ultimately get a smaller reduction.

“It may make sense to wait until after the 20 per cent reduction is applied,” the government said.

“Making a voluntary repayment after 1 June 2025 will maximise the impact of your repayment and result in a greater reduction in your HELP debt.”