The mistakes to avoid amid the 20 per cent cut to student debt

A one-off reduction on all Higher Education Loan Program (HELP) debts, including university loans, known as HECS, will be backdated to June 1.

Federal education minister Jason Clare said on October 5 that students "will be able to see it and feel it".

"Just out of uni, just getting started - this is taking a weight off their back," he said.

The legislation will also raise the income threshold for minimum HECS debt repayments and change how student debt was repaid.

The minimum compulsory repayment threshold will increase to $67,000 in the 2025-26 income year up from $56,156 in 2024-25.

H&R Block's tax communications director Mark Chapman told ACM that lifting the minimum repayment threshold would mean lower-income earners kept more take-home pay before repayments began.

"It's a fairer design that eases the pressure on graduates as they establish themselves financially," he said.

"A higher repayment threshold does mean some graduates will start repaying later, allowing more time for indexation to compound," he said.

"Over time, that can increase the total amount repaid, particularly for those with higher study costs."

"The best approach is to understand how indexation works and manage the debt proactively."

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Indexation is applied on June 1 each year.

"If you're in a position to do so, consider making small voluntary repayments before that date," Mr Chapman said.

"These repayments reduce the balance that indexation is applied to, which can save you money over the life of the loan and improve your borrowing capacity for major purchases like a home or car."

The 20 per cent reduction and changes to minimum repayments were a major Labor election commitment and the first legislation introduced to the new parliament.

The government estimates that about three million Australians will have their debt reduced.

A person with an average debt of $27,600 will experience a $5,520 reduction.

Despite the coalition saying during the election campaign that it would not support the measure, new leader Sussan Ley agreed the opposition party would not stand in the way.

"We do care about students who are struggling with the cost of living, and I said we'd be positive where we can be and critical where we need to be," she said.

-with Australian Associated Press