How HECS Debt Affects Home Loan Borrowing Power

HECS debt reduces your home loan borrowing power because lenders treat your compulsory repayment as a fixed ongoing expense, exactly like a car loan or credit card commitment. As of 2026, a graduate earning $90,000 loses roughly $30,000–$50,000 in borrowing capacity from a typical HECS balance — and paying the debt out can sometimes restore more capacity than a bigger deposit would.

Why HECS debt affects your borrowing power at all

Banks do not care about the size of your HELP balance the way they care about a personal loan balance. What they assess is serviceability: how much of your monthly income is left after tax, living expenses and existing commitments. Because compulsory HECS repayments are withheld from your pay through PAYG, they shrink your net income, and net income is the raw material every serviceability calculator runs on.

Under the marginal repayment system that applies from the 2025–26 income year, you repay nothing on the first $67,000 of repayment income, approximately 15 cents in the dollar on income between $67,000 and about $125,000, and approximately 17 cents in the dollar above that. So the higher your salary, the larger the slice of income a lender must set aside for your HECS — and the bigger the hit to your borrowing power, even though a higher salary also lifts it.

The practical takeaway: two applicants on identical salaries, one with HECS and one without, can be offered loan amounts that differ by tens of thousands of dollars. You can see your exact annual repayment for any salary with our HECS repayment calculator before a lender does the same maths on you.

How much borrowing power does HECS actually cost?

A widely used rule of thumb among brokers is that every dollar of committed annual expense reduces borrowing capacity by roughly six to eight dollars, depending on interest rates and the lender's assessment buffer. Applying that to 2025–26 repayment settings gives an indicative picture like this. These figures are approximate and vary between lenders — treat them as a guide, not a quote.

Notice the pattern: because repayments are now marginal, low-to-mid incomes take a much smaller borrowing-power hit than they did under the old whole-of-income system, while incomes above $125,000 take a proportionally larger one. If your salary sits just above $67,000, HECS barely dents your application. If you earn six figures, it is often the single largest line item after living expenses.

How lenders assess HECS in 2026

Most Australian lenders handle HELP debt in one of three ways, and it pays to know which one you are dealing with:

Since 2025, regulators have signalled that lenders may exclude HELP debt from serviceability where it is close to being repaid, and several banks have updated policy accordingly. As of 2026 this is applied inconsistently, so a mortgage broker who knows each bank's current HELP policy can be genuinely valuable rather than a nice-to-have.

Should you pay off HECS before applying for a home loan?

Sometimes — but run the numbers both ways first, because the same cash can either clear the debt or grow the deposit, and they do different jobs.

Paying out your HECS removes the repayment from serviceability entirely, which restores the borrowing power shown in the table above. Keeping the cash as deposit reduces your loan-to-value ratio, which can cut or eliminate lenders mortgage insurance (LMI). As a rough rule, if your deposit is hovering just under 20 per cent, the LMI saving usually beats the serviceability gain. If you already have 20 per cent, clearing a small-to-medium HECS balance often unlocks more loan than the same dollars would as extra deposit.

Two cautions. First, voluntary repayments are not refundable — once paid, that money is locked in. Second, HECS is the cheapest debt you will ever hold: it carries no interest, only annual indexation, which as of 2026 is pegged to the lower of CPI and wage growth. Estimate your own break-even with the HECS calculator, then compare the borrowing-power gain against the LMI saving for your specific deposit.

Do you have to declare HECS on a home loan application?

Yes. Home loan applications ask you to disclose all liabilities, and HELP debt is a liability. Deliberately omitting it can constitute providing false or misleading information on a credit application, and lenders can usually spot it anyway — the repayment is visible as a deduction on your payslips and your notice of assessment. Since lenders now routinely ask for both, non-disclosure mostly just delays approval while they query the mismatch.

Remember that HECS does not appear on your credit report and does not affect your credit score. It only enters the picture through the income-and-expenses assessment. You can check your current balance any time through ATO online services via myGov, and the ATO publishes the current repayment thresholds and rates on its study and training support loans page.

Five ways to boost borrowing power without paying off HECS

If clearing the balance is not realistic, these moves typically matter more to a lender than your HELP debt does:

1. Cut credit card limits. Lenders assess the full limit, not the balance. A $10,000 unused limit can cost more borrowing power than a $2,000 annual HECS repayment.

2. Close buy-now-pay-later accounts. Many banks treat active BNPL as an ongoing commitment and a spending-behaviour flag.

3. Trim discretionary spending for three months. Lenders review recent statements; a cleaner spending pattern lifts assessed surplus income.

4. Apply with your partner. A second income usually adds more capacity than a HECS repayment subtracts — though their debts count too.

5. Time the application around a payoff. If your balance will clear within a year, ask your broker which lenders will disregard it now.

Before you talk to a broker, work out exactly what your HECS costs you per year at your current salary using the repayment calculator — walking in with that number makes every conversation faster.

Worked example: Sam and Alex apply for the same loan

Sam and Alex both earn $95,000, have identical living expenses, and each bring a $110,000 deposit to the same lender. Sam has no HELP debt; Alex owes $32,000. The lender's serviceability model deducts Alex's compulsory repayment — approximately $4,200 a year, or about $350 a month — from assessable income before calculating maximum loan size. At an assessment rate of around 9 per cent (the actual rate plus the mandatory 3 per cent buffer), that $350 a month supports roughly $40,000–$45,000 of loan. Sam is approved for about $560,000; Alex for about $518,000.

Now the interesting part. Alex asks the broker to model paying $10,000 of the deposit into the HELP balance instead. The remaining $22,000 balance produces the same repayment percentage — compulsory repayments depend on income, not balance — so serviceability does not move at all, but the deposit falls by $10,000, and the maximum purchase price falls with it. Partial HECS payoffs before a loan application generally achieve nothing for borrowing power. The strategies that actually work are binary: clear the debt completely, find a lender that disregards a near-finished balance, or leave it alone and preserve the deposit. This is a genuinely counterintuitive trap, and it catches out buyers every year who assume that a smaller balance must mean a bigger loan.

One more wrinkle worth knowing: because the repayment is a percentage of income, a pay rise increases your HECS expense at the same time as it increases your income. The net effect on borrowing power is still strongly positive — you keep 85 cents of every extra dollar between $67,000 and $125,000 — but it is smaller than the same pay rise would deliver to a debt-free applicant. Factor that in if you are timing an application around a promotion.

HECS and first home buyer schemes

HELP debt does not disqualify you from any of the major government supports. The First Home Guarantee (buying with a 5 per cent deposit and no LMI), state stamp duty concessions, and the First Home Super Saver Scheme are all assessed on income caps, property price caps and prior ownership — not on student debt. In fact, HECS pairs well with the First Home Guarantee: the scheme removes the LMI penalty of a small deposit, which weakens the case for draining savings into your HELP balance and strengthens the case for keeping cash as deposit. The serviceability haircut from your repayments still applies inside the scheme, so the borrowing-power table above is just as relevant — the scheme changes how much deposit you need, not how much a lender will let you repay each month.

The bottom line

HECS debt affects home loan borrowing power through serviceability, not through your credit score or the raw balance. As of 2026, the marginal repayment system means modest incomes lose little capacity while higher incomes lose meaningfully more. Whether to pay the debt out before applying depends on your deposit position: below 20 per cent, deposit usually wins; at or above it, clearing HECS often unlocks more loan. Either way, declare it, know your annual repayment figure, and make the lender's maths your maths first.

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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