Heads up- If you’re an Australian with student loan debt, don’t expect to expect to see a HECS or HELP loan credit on your tax return this year.

Why not?

Cast your mind back to May of this year. Challengers inspired a mass bisexual awakening, Brat Summer was seven days away from taking over the world, and the federal government announced that it would seek to change the way student debt is indexed - a move that is expected to remove around $3 billion worth of debt for millions of current and former students.

Traditionally, student debt balances have been indexed in line with the Consumer Price Index (CPI) on June 1 each year. This hadn't been much of an issue in the past when inflation was low; However, last June the indexation rate came in at 7.1% as inflation peaked. This was the highest figure in decades and one which was viewed as another blow to many people already debilitated by the cost of living crisis. In the wake of this sentiment (and a recommendation from the Australian Universities Accord), the government proposed to change the indexation calculation to ensure that balances increase in line with the lower of the Consumer Price Index or the Wage Price Index (WPI).

The change would also apply retrospectively from June 1, 2023.- So all debts in existence at that point would be indexed at a rate of 3.2% rather than 7.1%, while the annual indexation rate for this year would be 4% rather than 4.7%.

Ok, cool- what does that have to do with me?

Great news! Not only are indexation reforms likely to have a noticeable impact going forward, but they will also be backdated. This means that anyone with current student debts (or debts that existed in June 2023) will also be eligible for a credit.

For example, the government estimates that someone with an average student loan balance of $26,500 will be in like for a credit around $1200. If you’re looking to find out how much of a refund you’d be looking at, you can use the government's HELP Indexation Credit Estimator*.

*Quick note: As the name implies, you’ll get a rough estimate based on student loan balances as of June 2023 - it's not a guarantee.

Sweet! So, when will the credits be applied?

You might have been expecting to see a credit on their tax returns in the coming weeks, but the indexation reforms need to be legislated first. If they haven’t been legislated, they can’t kick in. As of the time of this article, that legislation hasn’t happened yet.

Alright... So, when are they getting legislated?

Here's the thing- no date has been set for these changes as of yet.

Let Coco Hou, managing director of Platinum Accounting Australia, explain:

"Credits or adjustments from changes in indexation are applied to the outstanding loan balance, not reflected as a credit on tax returns.

"This change is retroactive, applying to the 2023-24 financial year when the indexation rate was 7.1% based on CPI. So the ATO will automatically apply a credit to current HECS-HELP borrowers' accounts to reflect the lower 3.2% indexation rate."

To break this down a little, the “how” depends on whether the debt is still active or not. So, those with outstanding debt will have their balance credited.

Furthermore, good news for anyone who has paid off their student debt since June 2023- You will receive a refund from the tax office down the line if you don't have any other tax-related debts. Here’s Coco Hou again:

"Individuals who fully paid off their HECS-HELP loans within the past year will also receive a credit, but as a cash refund rather than an account adjustment. This is because they no longer have an outstanding loan balance for the credit to be applied to."

Need some help with tax time?

Read up on these five deductions you might not know about, or start the new financial year on a high with these seven tips.