Your HECS-HELP debt is costing you more than you might think in 2026. The mandatory repayment threshold has risen to $54,435 for the 2025-26 income year, and compulsory repayment rates range from 1% to 10% of your income depending on your earnings. Add in the annual indexation of the debt balance (CPI-linked), and many Australians with HECS are paying more than they realise. Here is exactly what your HECS-HELP debt is costing you in 2026.
HECS-HELP Indexation Rate in 2026
HECS-HELP debts are indexed to the Consumer Price Index (CPI) each year on 1 June. After the extraordinary indexation of 7.1% in June 2023, the rate moderated in 2024 and 2025 as inflation eased. The 2025 indexation rate (applied to debts on 1 June 2025) was approximately 4.7%. For a borrower with a $35,000 HECS debt, a 4.7% indexation adds approximately $1,645 to the debt balance in a single year.
2025-26 Compulsory Repayment Thresholds and Rates
- Under $54,435: No compulsory repayment required
- $54,435 to $62,828: 1% of total income
- $62,829 to $66,981: 2% of total income
- $66,982 to $79,099: 2.5%
- $79,100 to $92,969: 3.5%
- $92,970 to $107,276: 4.5%
- $107,277 to $114,231: 5.5%
- $114,232 to $135,596: 6.5%
- $135,597 to $159,843: 7.5%
- $159,844 to $174,546: 8.5%
- $174,547 to $186,457: 9%
- Above $186,457: 10%
How HECS Affects Your Mortgage Borrowing Power
Lenders view HECS repayments as a debt commitment that reduces your net take-home pay. On an $80,000 income in 2026, HECS repayments of 3.5% ($2,800/year or $54/week) reduce your assessed disposable income — lowering your borrowing capacity by approximately $20,000-$30,000 with most lenders. Voluntary HECS repayment before applying for a home loan is worth modelling carefully.
Should I Make Voluntary HECS Repayments in 2026?
With indexation now lower than peak 2023 levels, the case for aggressive voluntary repayment depends on your alternative uses for that money. Compare the effective cost of the HECS debt (indexation rate) against the after-tax return you could earn by investing that money instead. If your HECS debt is above $50,000 and you are applying for a home loan, voluntary repayment to eliminate the debt has a clear benefit through improved borrowing capacity.
Frequently Asked Questions
Can I claim a HECS repayment as a tax deduction?
No. HECS-HELP compulsory and voluntary repayments are not tax deductible. They are a government loan repayment — not an expense incurred in earning income. Unlike income protection insurance or investment loan interest, there is no deduction available for student loan repayments in Australia.
What happens to my HECS debt if I go overseas?
Since 1 July 2017, Australians living overseas with HECS-HELP debts must make repayments if their worldwide income exceeds the repayment threshold. You must register your overseas presence with the ATO and lodge an overseas levy assessment. Failure to comply results in penalties. The debt also continues to be indexed annually on 1 June regardless of where you live.
How is the HECS repayment amount calculated?
Your HECS repayment is calculated on your "repayment income" — your taxable income plus reportable fringe benefits, total net investment loss, reportable employer super contributions, and exempt foreign employment income. The ATO calculates this when you lodge your tax return and any shortfall from insufficient withholding becomes a tax debt.
Want to understand how HECS affects your tax and borrowing position? Contact AWTS for a personalised review.
