The Two HECS Traps That Catch Expats: Voluntary vs Compulsory, and the Two Different Thresholds

Let’s kill a myth that refuses to die. Somewhere in expat circles, around the third beer, someone always pipes up: “Just move overseas for a few years and your HECS debt disappears.” It does not. It never has. Your HELP debt has roughly the lifespan of a cockroach and the patience of a saint, and it will be waiting for you no matter how many borders you cross and how long you’re away.

What’s actually true is more interesting, and trips up even the financially switched-on. There are two quirks in the HELP system that catch expats every single year: a counterintuitive rule about voluntary repayments, and the fact that there are two separate income thresholds doing two different jobs. Get either wrong and you’ll either overpay or cop a penalty. Let’s sort both.

First, the myth-busting basics

If you have a HELP debt (the modern name for HECS, and the same rules catch VET Student Loans and Australian Apprenticeship Support Loans), you repay it based on your income, wherever in the world that income is earned. The Australian government fronted the cost of your degree on the understanding you’d pay it back, and moving to London doesn’t dissolve that deal.

Crucially, your compulsory repayment is calculated as a percentage of your income, not a percentage of your debt. This catches people constantly. Owe $8,000 or $80,000, it makes no difference to this year’s compulsory repayment; what matters is what you earn. The debt size only determines how many years you’ll be making those repayments.

Trap 1: A voluntary repayment does NOT cancel your compulsory repayment

This is the one that makes people swear out loud, so brace yourself.

If you still have any HELP debt during the year and your income is above the repayment threshold, you owe a compulsory repayment, full stop. Making a voluntary repayment partway through the year does not count towards that compulsory amount, and it does not get you off the hook. Unless your voluntary payment clears the entire debt to zero, the ATO will still calculate and demand the full compulsory repayment based on your income, on top of whatever you voluntarily paid.

Read that twice. People throw a few thousand dollars at their debt mid-year thinking they’ve prepaid their obligation, then get hit with the full compulsory repayment anyway, and suddenly they’ve paid far more in one year than they budgeted for. The voluntary payment wasn’t wasted (it reduced the balance), but it absolutely did not reduce the compulsory bill.

So the rule of thumb: a partial voluntary repayment and a compulsory repayment are two separate things that can both land in the same year. Only a voluntary payment big enough to wipe the debt entirely escapes the compulsory repayment.

So should expats make voluntary repayments at all?

Here’s where the modern answer is more nuanced than the old “never bother” line, and it comes down to a single date: 1 June.

Your HELP debt is indexed once a year, on 1 June. There’s no interest, just this annual indexation, and it was recently softened to the lower of inflation and wage growth, so the debt grows more gently than it used to. But it still grows. And here’s the lever: a voluntary repayment that reaches the ATO before 1 June reduces the balance that gets indexed. Pay $5,000 off on 31 May and that $5,000 isn’t indexed; pay it on 2 June and you’ve missed the boat for a year.

The trap within the trap, especially for PAYG types: the compulsory amounts collected through your salary during the year don’t reduce your indexed balance, because they aren’t credited until your tax return is processed, which is always after 1 June. Only a deliberate, manual voluntary payment made before 1 June reduces the indexation base. (This matters less for many non-resident expats, who don’t have Australian PAYG withholding and instead pay the levy as a lump sum after lodging, but the 1 June timing logic for voluntary payments still applies.)

Now the balancing act, and it’s a genuine judgment call rather than a slogan. HELP debt is still the cheapest money you’ll ever owe: no interest, gentle indexation. So the old wisdom holds firm, clear your high-interest debts first. That credit card at 20% obliterates any benefit from prepaying an interest-free study loan. But if your other debts are handled and you’ve got spare cash, a pre-1-June voluntary payment can save you real money on indexation over time. The right answer depends on your balance, your other debts, your currency situation, and your plans, which is exactly the sort of thing worth modelling properly rather than guessing.

Trap 2: There are TWO thresholds, and they do different jobs

Almost everyone knows about the repayment threshold. Almost nobody knows there’s a second one. Confusing them is how compliance-minded expats accidentally break the rules.

The repayment threshold is the income level above which you must actually pay something. For 2025-26 it’s $67,000 of worldwide income. Earn above it, and a compulsory repayment is calculated.

The reporting threshold is lower, set at 25% of the repayment threshold, and it’s the income level above which you must report your worldwide income to the ATO, even if you won’t owe a repayment. At a $67,000 repayment threshold, the reporting threshold sits around $16,750.

See the gap? If your worldwide income lands between roughly $16,750 and $67,000, you owe no repayment, but you are still legally required to calculate and report your worldwide income to the ATO. And if you’re below even the reporting threshold, you’re not off the hook either: you must lodge a non-lodgment advice telling the ATO no report is needed. There is genuinely no “do nothing” option while you hold a debt overseas.

Is this faintly absurd, generating paperwork from people who owe nothing? We’d gently agree it’s a compliance burden. But the ATO’s view is that it keeps the system honest, and “I thought I earned too little to bother” has never once worked as a defence against a failure-to-lodge penalty.

How the repayment is actually calculated

If you do clear the repayment threshold, the good news is the 2025-26 rules are kinder than the old ones. Repayments are now worked out on a marginal basis, meaning you pay a percentage of the income above $67,000 rather than a percentage of every dollar you earn. The old system, where nudging one dollar over the threshold triggered a repayment on your whole income, created a brutal cliff that this reform removed.

The repayment is charged to non-residents as an overseas levy after you lodge, and the ATO expects it as a lump sum. So a word of hard-won advice: if you know you’ll be over the threshold, set money aside through the year. Treat your likely repayment like a bill you can see coming, park a slice of each pay packet, and the annual levy becomes a non-event rather than a nasty surprise. (For the full mechanics of the brackets and the recent 20% debt reduction, see our complete expat HECS/HELP guide.)

The bottom line

Two traps, both avoidable. First: a partial voluntary repayment never cancels your compulsory repayment, so don’t pay extra mid-year expecting to dodge the annual bill, though a lump sum before 1 June can genuinely save you on indexation if your other finances are in order. Second: the reporting threshold is far lower than the repayment threshold, so you can owe nothing yet still be legally required to file. When in doubt, report (or lodge a non-lodgment advice). Silence is the one option that’s never safe.

Tread your own path. Just keep one eye on the calendar and the other on which threshold you’ve crossed.

Not sure which threshold you’ve crossed, or what to pay?

This is fiddly stuff, and the cost of getting it wrong (penalties, or simply overpaying) adds up fast. We calculate worldwide income, work out the right repayment, handle the reporting and the non-lodgment advices, and tell you honestly whether a voluntary payment makes sense for your situation, all remotely, wherever you are in the world.

Book an appointment with our expat tax specialists today, or send us a message, and get it sorted before the next deadline. Your future self (and your hip pocket) will thank you.

General information only. This article doesn’t consider your personal circumstances and isn’t tax or financial advice. Speak to our specialist expatriate tax team today, or with another registered tax agent, before acting.

References

1. Australian Taxation Office, “Overseas obligations when repaying loans” (worldwide income reporting, the reporting threshold and the 31 October deadline): ato.gov.au
2. Australian Taxation Office, “When you must repay your loan” (repayment thresholds and marginal repayment calculation): ato.gov.au
3. Australian Taxation Office, “Making voluntary repayments” (how voluntary repayments interact with compulsory repayments and indexation): ato.gov.au
4. Australian Taxation Office, “Study and training loan indexation rates” (the 1 June indexation date and how the rate is set): ato.gov.au
5. Study Assist (Australian Government), “Moving overseas” (overseas repayment obligations based on worldwide income): studyassist.gov.au