If you’re among the more than three million Australians with a student loan, there’s welcome news that could significantly lighten your financial load. The Australian Government is now applying legislation to reduce student loan debt by 20%. The ATO reduces your student debt balance by 20% as at 1 June 2025, before indexation, and then recalculates the 2025 indexation on the reduced balance.
You don’t need to take any action. The ATO planned to apply most reductions before the end of 2025 and is processing more complex reductions in early 2026. The ATO will notify you by SMS, email, or your myGov inbox once it applies your reduction.
If your loan account is in credit after the reduction, you may receive a refund. However, if you have outstanding tax or other Commonwealth debts, the ATO will apply your credit to these debts first.
Changes to repayment thresholds
From 1 July 2025, the minimum repayment income needed to make a compulsory repayment has increased to $67,000 for the 2025–2026 income year. Compulsory repayments have also moved to a marginal repayment system. This means they’re only calculated on the part of your income above $67,000 (instead of your total repayment income). This will reduce annual repayments for most people.
If your repayment income is $179,286 or more, your compulsory repayment will continue to be 10% of your total repayment income. In other words, you won’t be worse off because of the shift to marginal rates.
These changes may have important tax implications for you. Speak with your professional tax adviser to understand the full impact on your financial position.
Important: Clients should not act solely on the basis of the material contained here. Items herein are general comments only and do not constitute or convey advice per se. Also, changes in legislation may occur quickly. We, therefore, recommend that our formal advice be sought before acting in any of the areas.
