Money

HECS Debt 2026: Should You Pay It Off Early or Let Inflation Eat It?

Your HECS debt just got bigger. Here's the honest math on whether to clear it or leave it.

Published by NoBS Finance · 10 July 2026 · 6 min read

Key Takeaways

From 1 July 2025, HELP repayments use a marginal rate system. You pay 15% on income over $67,000, not a flat percentage of your entire income.
The minimum repayment threshold increased to $67,000 for 2025-26. If you earn $67,000 or less, you pay nothing.
A one-off 20% debt reduction was applied to eligible HELP balances in June 2025.
Indexation is now capped at the lower of CPI or WPI. Recent rates have been 2.8% (2026), 3.2% (2025), and 4% (2024).
Salary sacrifice contributions count as reportable super contributions, which can increase your repayment income and trigger HELP repayments even if your taxable income is below $67,000.

How much will you actually repay?

Enter your income into our free HECS calculator to see your estimated compulsory repayment under the latest Australian thresholds.

Calculate my HECS repayment →

HECS Debt in 2026

If you have got a HECS-HELP debt, you probably noticed it changed recently. The repayment system was overhauled from 1 July 2025, indexation was capped, and a one-off 20% debt reduction was applied. Here is what happened and what to do about it.

What Changed

Three major changes took effect from 1 July 2025:

The minimum repayment threshold jumped from $54,435 to $67,000. If you earn $67,000 or less, you pay nothing.
Repayments moved to a marginal rate system. Instead of a single flat percentage applied to your entire income, you now pay a percentage only on the income above the threshold, similar to how income tax works.
A one-off 20% debt reduction was applied to all eligible HELP balances as at 1 June 2025. If you owed $40,000, your debt was reduced to $32,000 before indexation.

The New Repayment System

For the 2025-26 financial year, HELP repayments are calculated on your repayment income using these marginal rates:

Repayment income	Repayment
$0 to $67,000	Nil
$67,001 to $125,000	15 cents for each $1 over $67,000
$125,001 to $179,285	$8,700 plus 17 cents for each $1 over $125,000
$179,286 and over	10% of your total repayment income

Your repayment income is not the same as your taxable income. It includes taxable income plus reportable fringe benefits, total net investment losses, reportable super contributions (including salary sacrifice), and exempt foreign employment income. This means salary sacrifice into super can push your repayment income above the threshold even if your taxable income is below $67,000.

Hypothetical Example: $90,000 Income in 2025-26

Hypothetical example: Say you earn $90,000 in repayment income in the 2025-26 financial year, with no other income components. Individual circumstances can affect the result.

Under the new marginal system:

$90,000 minus $67,000 = $23,000
$23,000 x 15% = $3,450 compulsory repayment

Under the old system (2024-25), $90,000 fell in the 4.5% bracket, so you would have paid $90,000 x 4.5% = $4,050 on your entire income. The new marginal system saves you $600 on the same income.

What Happened With Indexation

Indexation is applied on 1 June each year to the part of your loan that has been unpaid for more than 11 months. Recent indexation rates have been:

Year	Indexation rate
2026	2.8%
2025	3.2%
2024	4% (was 4.7%, reduced under new rules)
2023	3.2% (was 7.1%, reduced under new rules)

From 2025, indexation is calculated as the lower of CPI or the Wage Price Index (WPI). This change, along with the 20% debt reduction, means HELP debts are growing much more slowly than they were a few years ago.

Should You Pay Extra?

The decision to make voluntary repayments depends on your circumstances. Here is how to think about it.

Pay extra if:

You have savings earning less than the current indexation rate. Paying off HELP is like getting a guaranteed return equal to the indexation rate.
Your debt is small enough to clear in 1 to 2 years and you want it gone.
You are planning to apply for a mortgage and want to improve your borrowing capacity. Lenders treat HELP as a liability that reduces how much you can borrow.

Do not pay extra if:

You have high-interest debt like credit cards or personal loans. Clear those first. HELP indexation is much lower than 20% credit card interest.
You do not have an emergency fund. Locking cash into a debt you cannot re-borrow is risky if you have no buffer.
You could earn more by investing the money. If your expected investment return is higher than the indexation rate, investing may be the better play over the long term.

The Mortgage Angle

Banks treat HELP as a real liability when calculating borrowing capacity. The exact impact varies between lenders, but a HELP debt can reduce your borrowing capacity by a meaningful amount because the compulsory repayment reduces your assessed disposable income.

If you are planning to buy a home soon, clearing your HELP debt first could increase your borrowing capacity. Whether that is worth it depends on the size of your debt, how soon you plan to buy, and whether the increased borrowing capacity is more valuable than having that cash available for a deposit.

The exact impact varies by lender and individual circumstances. Check with a mortgage broker or lender for your specific situation.

The Verdict

There is no universal answer. The new marginal repayment system means lower compulsory repayments for most people compared to the old system. Indexation is lower than it was. And the 20% debt reduction has already been applied.

If your debt is under $15,000 and you have the cash sitting in a low-interest account, clearing it gives you a guaranteed return equal to the indexation rate. That is hard to beat in the current environment. But if you have higher priorities like bad debt, an emergency fund, or a house deposit, HELP can wait. It is the cheapest debt most Australians will ever have.