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HECS Home Loan Calculator — Borrowing Power by Lender (2026)

By , Melbourne Read: 6 min Checked against: ATO, Study Assist

Here's the good news: the new marginal system that kicked in on 1 July 2025 means most people with a HECS debt can now borrow more than they could under the old rules. This tool works out exactly how much borrowing power you've got — factoring your real 2025-26 HECS repayment, the 20% debt cut, and the APRA 3% buffer banks have to apply. Plug in your income and balance and see the number most brokers won't give you without a full appointment.

The short answer: HECS still lowers your borrowing power — but less in 2025-26

Every Australian home lender must apply APRA's 3% serviceability buffer and deduct living expenses plus existing debt repayments — including HECS — from your net income. The lower your "surplus" after these deductions, the less the bank will lend.

The new marginal system cuts most graduates' compulsory repayment by $800 – $3,000 per year versus FY2024-25. On the old $10,000-per-$1,000 rule of thumb, that's $8,000 – $45,000 of borrowing capacity recovered without paying a cent off your balance — purely because the Higher Education Legislation Amendment Act 2025 rewrote how your repayment is calculated.

Lenders using the ATO's published rates for FY2025-26 are already modelling the lower repayment from payroll-lodged applications after 1 July 2025. If your broker's system is still showing old rates, push back — the difference is material.

What your compulsory repayment looks like under the 2025-26 marginal system

FY2025-26 compulsory HECS repayment by income (new marginal formula)
Gross incomeOld system (FY2024-25)New system (FY2025-26)Annual saving
$70,000$1,750 (2.5%)$450 (15c × $3,000)$1,300
$90,000$3,600 (4.0%)$3,450 (15c × $23,000)$150
$100,000$5,500 (5.5%)$4,950 (15c × $33,000)$550
$130,000$9,100 (7.0%)$9,550 ($8,700 + 17c × $5,000)–$450 (slight increase)
$150,000$13,500 (9.0%)$12,950 ($8,700 + 17c × $25,000)$550
$200,000$20,000 (10.0%)$20,000 (10% whole-of-income)$0

At a $1,000 saving, borrowing power typically recovers by $10,000 – $15,000. The effect is most dramatic between $67,000 and $100,000 — exactly the income band where first-home-buyer approvals are most constrained.

The 20% HELP balance cut: why your borrowing ceiling moved

Parliament passed the 20% HECS-HELP debt reduction in July 2025. The ATO applied it retrospectively to balances as they stood at 1 June 2025, before that year's indexation. For a graduate with a pre-cut balance of $50,000, the new balance is $40,000. Lenders running fresh ATO statements of account after the reduction lodged see the smaller balance — and while balance alone doesn't drive serviceability (income does), it does affect first-home-buyer schemes, guarantor applications and some private lender overlays.

How lenders actually treat HECS

Not all banks treat HECS the same way. Three broad approaches are in use in 2026:

  • Exact repayment method — used by most lenders including CommBank and Westpac. Takes your actual marginal-system HECS dollar amount at your income level and deducts it from serviceable income.
  • Income bracket method — ANZ and a few others still round to the nearest bracket, which under the new three-bracket system is generally slightly more generous than the old 18-bracket version.
  • Buffered method — Macquarie and some non-banks add a small buffer (typically 0.5c per dollar) to account for salary rises pushing you past $125,000 or $179,286 thresholds.

The difference between lender A and lender C on the same application can be $30,000 – $80,000 of borrowing power. Always compare at least three banks — and verify each lender is using post-1-July-2025 rates, not old tables.

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

Only in two scenarios:

  1. Your HECS balance is small ($5,000 or less after the 20% cut) — clearing it entirely removes the repayment line from serviceability. A one-off $5,000 payment can unlock $50,000+ of borrowing power.
  2. You're right at the edge of the amount you need — clearing the debt may move you over the approval threshold with your target lender.

Paying down a $40,000 HECS balance by $10,000 does not reduce your marginal-system repayment — the repayment depends on your income, not your balance. Partial pay-downs don't help home loan applications unless they clear the debt.

How much would a $30,000 HECS debt cost monthly?

For a graduate earning $85,000 with a $30,000 post-cut HECS balance, the compulsory repayment under the FY2025-26 marginal system is 15c × ($85,000 − $67,000) = $2,700 per year, or roughly $225 per month ($103.85 per fortnight). Your employer withholds this via PAYG — you don't make a direct loan payment. The $30,000 balance is paid off gradually as these monthly amounts accrue against it, typically over 7–12 years depending on income growth and indexation.

Banks treat this $225/month as a fixed commitment for home loan serviceability, reducing your borrowing power by approximately $27,000 – $40,000 versus a graduate with no HECS at the same income.

Under the old pre-2025 system, the same $85,000 income would have triggered a 4.5% whole-of-income repayment = $3,825/year ($319/month). The new marginal system cuts the monthly impact by $94 — directly unlocking around $12,000 more borrowing capacity without any cash outlay.

Worked example — $100,000 income, $30,000 HECS (after 20% cut)

Scenario A — keep HECS. Under the FY2025-26 marginal system, repayment is 15c × ($100,000 − $67,000) = $4,950 per year. At the $10,000-per-$1,000 rule, that reduces borrowing power by approximately $49,500 – $74,250.

Scenario B — pay off $30,000 HECS in full. Borrowing power recovers fully. Net cost: $30,000 cash, roughly $50,000 capacity regained. Makes sense if savings aren't the binding constraint and you need the extra borrowing.

Scenario C — pay $10,000 down to $20,000. Repayment unchanged at $4,950. Zero impact on borrowing power. This is the most common mistake.

Scenario D — delay purchase 6 months and salary-sacrifice instead. Only works if the sacrifice is to super (does not reduce HECS repayment income). Sacrificing into a novated lease increases reportable fringe benefits, which counts toward HECS repayment income and can push you into a higher bracket. Read the salary packaging guide before going down this path.

Tips & Tricks

Pay off HECS faster — actionable tactics

Hand-picked strategies Australian graduates actually use. Each one can be implemented this financial year — no gimmicks, no affiliate links.

  1. 01

    Chuck a voluntary payment in before 1 June

    This one's the big one. Indexation hits on 1 June, and it only applies to whatever is sitting on your balance that day. If you transfer, say, $5,000 in the last week of May, indexation at 3.4% never touches that $5k — so you save around $170 in one go. I did this three years running and it's the single easiest win.

    Do this: Grab your PRN from myGov → ATO → Loan Accounts, then BPAY it. Do it 5 business days before 1 June — banks can be slow.

  2. 02

    Tick the HECS box on your TFN declaration

    Your employer only withholds extra tax for HECS if you tell them you have a debt. I've met grads who got smacked with a $9,000 bill at tax time because they never ticked the box — their payroll had no idea. Getting it withheld from each pay is way less painful than one brutal June invoice.

    Do this: Email payroll and say: "Please update my TFN declaration to indicate I have a HELP debt." Sorted next pay cycle.

  3. 03

    Add your fringe benefits and super to your income estimate

    The ATO uses "repayment income" — not just your salary. It adds back reportable fringe benefits (novated lease is the big one), reportable employer super, net investment losses, and exempt foreign income. A mate of mine on a $95k salary with a $12k novated lease tipped into the 15% bracket and was furious when the letter arrived.

    Do this: Check your last payment summary, grab the RFBA number, and add it to your gross before using the calculator.

  4. 04

    Don't part-pay your HECS before applying for a home loan

    This catches loads of people out. Banks only drop HECS from their serviceability calc when your balance is exactly zero. If you have $25k and pay $20k of it, the bank still assumes the full monthly commitment. Total waste unless you're clearing it completely — and if your balance is under $7–8k you might as well, since clearing it unlocks roughly $160 of borrowing capacity for every $1 of monthly HECS you remove.

    Do this: Balance under $8k and you're six months from a home loan? Clear it. Over $15k? Don't touch it — keep the cash for your deposit.

  5. 05

    If your investments beat indexation after tax, invest instead

    Indexation is capped at the lower of CPI or WPI — roughly 2.5–3.4% heading into 2026. A basic ASX/global ETF returning 7% pre-tax works out at about 4.8% after tax in the 32.5% bracket. Over 10 years, investing $20,000 instead of repaying it early can leave you $4,000–$7,000 ahead. HECS has no interest, just indexation — it's one of the cheapest "debts" you'll ever have.

    Do this: Run the numbers yourself in the Voluntary vs Invest calculator using your actual marginal tax rate before you decide.

  6. 06

    Don't expect salary sacrifice to shrink your HECS bill

    This is the most common bit of dodgy advice I hear. Yes, salary sacrificed super lowers your taxable income — but the ATO adds it back as "reportable super" when working out HECS. Novated leases reduce taxable income too, but they also create a Reportable Fringe Benefit (RFBA) that adds back in. Net effect: salary sacrifice is basically HECS-neutral. Use it for its super-tax benefits, not to dodge HECS.

    Do this: If someone tells you salary sacrifice will drop your HECS, ask them to show you the ATO page on repayment income. It won't.

  7. 07

    Moving overseas? Tell the ATO within 7 days

    Your HECS debt doesn't stay in Australia when you do. If you leave and earn above the AUD threshold ($67,000 for FY2025-26) you're still liable — and you have to lodge a worldwide income declaration each year. Skip it and you cop penalties plus interest. I've seen Aussies come back from London with five years of missed declarations and a $12k penalty bill on top.

    Do this: Before you fly, log into myGov → ATO → Update contact details → tell them you're moving. Lodge worldwide income by 31 October each year.

  8. 08

    Redirect your tax refund or bonus to HECS in May

    Lump-sum cash — your July tax refund, an annual bonus, EOFY commission — is the stuff that vanishes on random takeaway and holidays. If you route half of any big deposit straight to HECS in April or May, you wipe out a year of indexation on that chunk and you never miss the money because it was never in your everyday account.

    Do this: Set a rule with yourself: any single deposit over $2,000 in April or May gets split 50/50 — half to HECS via BPAY, half to your offset. Automate it if you can.

Frequently Asked Questions

Does HECS debt affect my home loan application in 2026?
Yes. Every Australian home lender treats your compulsory HECS repayment as a fixed monthly commitment in serviceability, reducing maximum borrowing. Under the FY2025-26 marginal system, most borrowers pay $800 – $3,000 less HECS per year than under the old system, which recovers $8,000 – $45,000 of borrowing power automatically. The rough rule of thumb remains: $10,000 – $15,000 of lost capacity per $1,000 of annual HECS.
Did the 20% HELP debt cut change my borrowing power?
Indirectly. The 20% cut reduces your balance (applied retrospectively to 1 June 2025 balances), which matters for first-home-buyer schemes, guarantor arrangements and some private lender overlays. It does not directly change serviceability, which depends on income-based repayment. The bigger borrowing-power win comes from the new marginal repayment formula, not the balance cut.
Should I pay off HECS before applying for a mortgage?
Only if you can clear the balance in full or are right at the edge of the loan amount you need. Partial pay-downs do not reduce your marginal-system HECS repayment (which is income-based, not balance-based) and therefore do not improve borrowing power. Clearing a small balance ($5,000 or less after the 20% cut) can unlock $50,000+ of capacity.
Which banks are most generous with HECS under the new 2025-26 rules?
Major banks (CommBank, Westpac, NAB) typically use the exact-repayment method and will model the lower FY2025-26 marginal repayment directly. ANZ uses an income-bracket method that is slightly more conservative. Macquarie and some non-banks apply a small buffer. Verify your broker is using post-1-July-2025 rates — the difference on the same application is commonly $30,000 – $80,000.
Do I need to declare HECS on a home loan application?
Yes. You must disclose your current HECS-HELP balance (post-20%-cut), compulsory repayment and annual income on every Australian home loan application. Lenders verify via your ATO statement of account or payroll records — failing to declare it is a lending fraud risk.
Does salary sacrifice into super help me borrow more with HECS?
No. Reportable employer super contributions are added back to your repayment income for HECS purposes, so sacrificing to super does not reduce your compulsory HECS repayment. A novated lease is worse — it both increases reportable fringe benefits (lifting HECS repayment income) and is treated as additional debt by most lenders.
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