Written by William Ilka and Adam Dobeli
The Australian Government has announced reforms to the HECS-HELP repayment system, effective from 1 July 2025.
The Key Changes are as follows:
- Increased Repayment Threshold: The minimum income threshold for compulsory HECS repayments will rise from $54,435 in 2024–25 to $67,000 in 2025–26;
- Marginal Repayment System: Repayments will be calculated only on the income above the new $67,000 threshold, rather than the total annual income.
These changes aim to reduce the financial burden on graduates, allowing them to retain more income before mandatory repayments commence.
How HECS Repayments Affect Young Professionals
HECS debt influences various aspects of a young professional’s financial life including:
- Reduced Borrowing Capacity: HECS repayments are considered in serviceability assessments by lenders, potentially limiting borrowing power for loans such as mortgages. Note: there are potential changes in the works which will allow borrowers to exclude their HECS debt from serviceability assessments by lenders.
- Financial Planning Challenges: Mandatory repayments can affect cash flow, making it essential for graduates to budget effectively to manage both living expenses and debt obligations.
Should Business Owners Support Their Children’s HECS Repayments
We recently published an article on the ‘Bank of Mum and Dad’ that discussed various strategies for mum and dad to assist their children with purchasing a property.
Depending on the family group and their business structure, the changes to the HECS repayment threshold and calculation may provide an opportunity for parents to assist their children with this endeavour in a tax effective manner as the tax burden imposed on their children with a HECS debt will be reduced.
Conclusion:
The changes to the HECS-HELP repayment threshold will provide welcome relief for many young professionals in the current economic climate. In addition, these changes might provide a flow-on benefit for the broader family group as parents will be able to provide their children with more funds than before due to the reduced HECS repayment requirements.
For anyone wishing to discuss the potential impact of the HECS changes, please contact your Hall Chadwick QLD advisor.
