HECS and Your Home Loan: How Banks Really Count It

When you apply for a home loan in Australia, a HECS-HELP debt does not reduce how much you can borrow directly, but banks treat your compulsory HECS repayment as an ongoing monthly commitment that lowers your assessable income. In practice, a HECS debt and a home loan interact through your net serviceable income: the lender subtracts your annual HECS repayment (based on your repayment income) before calculating borrowing power, so a larger salary that pushes you into a higher repayment threshold can shrink your maximum loan.

How HECS and a home loan actually interact

Lenders do not care about your total HECS-HELP balance the way they care about a car loan or credit card limit. What matters is the compulsory repayment the Australian Taxation Office (ATO) will take each year, because that is money leaving your pay packet that cannot go toward the mortgage. Since 1 July 2024, the compulsory repayment is calculated on a marginal system: you pay a percentage only on the income above each threshold, not a flat percentage of your whole salary. Most banks, however, still assess the repayment conservatively, often applying the top applicable rate to your full income to build in a buffer.

This is why two applicants on the same salary can get different outcomes. A borrower with no study debt keeps 100% of their after-tax income available for serviceability; a borrower with a HECS debt has 1%-10% of their repayment income redirected to the ATO first. On a $90,000 salary that difference can be $3,000-$4,500 a year, which at typical assessment rates translates to roughly $20,000-$35,000 less borrowing capacity.

Repayment income is not the same as taxable income

Your HECS repayment is calculated on repayment income, which is taxable income plus reportable fringe benefits, reportable super contributions, net investment losses and any exempt foreign income. Salary sacrificing into super can therefore increase your HECS repayment even while it lowers your taxable income, which occasionally surprises applicants trying to optimise both super and a mortgage at once.

HECS repayment thresholds and rates as of 2026

The figures below reflect the indexed 2025-26 thresholds published by the ATO. Thresholds are indexed each year, so confirm the current-year table before relying on these numbers.

Figures are approximate and change with annual indexation; use the official ATO tables and our HECS repayment calculator for your exact figure before you talk to a broker.

How much borrowing power does HECS cost you?

The table below is an illustration of how a HECS repayment typically reduces maximum borrowing capacity at 2026 assessment rates (around 6% actual plus a serviceability buffer of about 3%). Treat these as indicative ranges, not quotes.

Should you pay off HECS before applying?

Paying out a small remaining HECS balance can be worthwhile if you are close to settlement and the debt is small enough to clear from savings without gutting your deposit. If your balance is under roughly one year's compulsory repayment, clearing it removes the repayment from your serviceability assessment entirely and can restore borrowing power. But if clearing HECS means a smaller deposit that tips you over an 80% loan-to-value ratio, you may trigger Lenders Mortgage Insurance (LMI) that costs more than the borrowing power you gained. Run both scenarios.

The timing trap: lump-sum voluntary repayments

If you make a voluntary lump-sum repayment, the ATO still applies the compulsory repayment at tax time for that financial year unless your balance hits zero before indexation and the return is lodged. Banks assessing your application mid-year will usually still count the compulsory repayment until you can show a zero balance on an ATO statement. Get the timing right or the money is tied up without the serviceability benefit.

Practical steps before you apply

• Download your latest HECS-HELP balance and repayment history from myGov linked to the ATO.
• Model your compulsory repayment at your current and expected salary using our calculator.
• Ask brokers how each lender assesses HECS — some apply a flat top rate, others use graduated tables; the difference can be tens of thousands in borrowing power.
• Avoid large salary-sacrifice changes in the 12 months before applying, as they move your repayment income.
• If clearing the debt, get written ATO confirmation of a zero balance to give your lender.

How different lenders assess HECS — and why it matters

The most under-appreciated fact in this whole topic is that lenders do not assess HECS the same way. Because the compulsory repayment is not a fixed debt with a set instalment like a personal loan, each bank builds its own policy for how conservatively to treat it. Some apply the actual marginal repayment shown on your payslip. Others apply the top applicable rate to your entire gross income to build in a buffer against future pay rises. A minority will disregard the repayment entirely if you can prove the debt will be cleared within a short window, typically 6 to 12 months, from your own funds.

This variance is exactly why a mortgage broker earns their keep for HECS-affected borrowers. Two lenders looking at the identical applicant — same salary, same deposit, same HECS balance — can produce maximum loan figures tens of thousands of dollars apart purely because of how they model the repayment. If a first lender declines or low-balls you, it does not mean your borrowing power is fixed; it may simply mean you approached a lender with a conservative HECS policy. Ask your broker specifically which lenders on their panel use graduated repayment tables rather than a flat top-rate assumption.

The refinance and future-salary angle

If you are early in your career and expect your income to climb, remember that a higher salary pushes you into higher HECS repayment bands, which can partly offset the borrowing-power benefit of the raise. Planning to buy now and refinance later once the HECS debt is smaller or cleared is a legitimate strategy, but factor in that indexation is applied to your outstanding balance each year before compulsory repayments reduce it, so the balance can feel stubborn in the early years. Always confirm the current indexation rate and thresholds, because both change annually.

For the authoritative repayment thresholds and indexation rules, see the Australian Taxation Office study and training loans guidance, which is updated each financial year.

This article is general information, not financial, tax or legal advice. Figures are approximate and change over time — always verify with a qualified professional or the official source before making a decision.

Written and reviewed by the HECS Debt Calculator editorial team. Facts checked against primary sources; see the reference above.

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