What’s indexation and how does it impact my HECS debt?

Estimated reading time
 6 min

In this article

• Learn what indexation is
• Ways to pay off HECS debt faster
• How to adjust your budget to deal with increases

So, you’ve been paying off your student loan, but it’s just increased substantially (oh, HECS!).

Why the sudden steep rise, you might be wondering? It’s all due to a little thing called ‘Indexation’.

Maybe it’s a term you’ve heard but perhaps haven’t had time to investigate. Not to worry, today we’re here to break it down and give you easy tips on how to pay off your HECS debt.

What’s indexation?

Indexation means that the price of something is adjusted based on the changes to an external factor. In this case, your student loan (HECS-HELP) is adjusted to match the changes of the Consumer Price Index (CPI) – a term that gets thrown around whenever we talk about inflation or interest rate rises.

Indexation is applied to your HECS debt every year on June 1. In 2023, student debt increased by 7.1 per cent in line with changes in the cost of living as measured by the consumer price index (CPI). In other words, your loan has been impacted by a big inflation year.

Now you might be thinking, “less words, more math please!” How much will your HECS debt actually increase? Well, for a typical student loan of about $25,000, you can expect your debt to go up by approximately $1,775 this year, taking your total debt to around $26,775.

  Hot tip:

Use the Government’s handy Repayment Calculator to determine your post-indexation HECS-HELP balance.

If your debt is a little on the hefty side or if you’ve ever wondered how to pay off HECS debt faster, don’t panic. We’ve prepared some ideas which could help you get on top of your loan or pay it off sooner to try and minimize the impact of HECS indexation in the future.

Remember, do your research and consider your circumstances as a whole in order to work out what suits you and your objectives. Seek independent financial and tax advice.

Some ways to pay off HECS debt faster

1. Make voluntary payments

If you’re wondering how to avoid indexation on HECS debt, then making extra payments can really shave some years off your student loan. While the mandatory HECS–HELP payments kick in once you earn above the $51,550 threshold¹, you can make voluntary payments anytime through the myGov portal with BPAY. Consider using some of your tax refund to pay off your loan, so it doesn't feel like it's taking away from your spending money. Income thresholds can change, so it’s good to keep on top of what they are every year.

2. Increase withholding tax

You can ask your employer to increase withholding tax beyond the mandated repayments rates to be allocated towards additional HECS-HELP repayments.

3. Salary sacrifice

Many people associate salary sacrifice with superannuation, but you can actually use it for paying off HECS-HELP debt too. By talking to your employer, you can nominate an amount you’d like to transfer each pay cycle from your pre-tax salary to your student loan to speed up the repayments. So, instead of seeing it as a ‘sacrifice’, this could be a way to get a financial head start on your repayments. You should also be aware of fringe benefits when setting up this type of agreement, so you might want to seek a tax adviser around the tax impact and a financial advisor as to the impact on your overall financial position before locking anything in.

What’s next, HECS?

While this year’s student loan increases might be concerning, it doesn’t necessarily mean another rise is in the works for next year. CPI is pretty high at the moment – with, marking the largest indexation increase since 1990. But indexation increases can feel a little bit like a rollercoaster. If we look back through historical data, we’ll find several instances where the CPI index has come back down.

The best thing you can do to prepare is to keep an eye on your loan and the CPI rate every year around July. If it looks like another indexation increase is in store, remember paying off HECS through salary sacrifice or voluntary payments can reduce its overall impact. And if you want more advice on how to pay off HECS debt early, then reach out to your bank if you need help adjusting your budget or navigating a big change.