HECS and Borrowing Capacity Australia — How Your Student Loan Affects Your Mortgage
This article provides general information only and does not constitute financial advice. For advice tailored to your situation, consult a licensed financial adviser. Learn more.
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Around 3 million Australians have a HECS-HELP debt. For many, it’s a constant background presence — deducted from pay before they even see it — but it rarely feels urgent because there’s no interest in the traditional sense (just indexation). When it comes to buying a home, however, HECS debt has real consequences for borrowing power.
How Does HECS Affect Borrowing Capacity?
Lenders assess your ability to repay a home loan based on your income minus your committed expenses. HECS compulsory repayments are treated as a committed expense — they come out of your income before you can spend it on mortgage repayments.
When a lender calculates your borrowing capacity, they ask: “After all your committed expenses, how much is left to service this loan?” Your HECS repayment reduces this available amount.
Compulsory HECS Repayment Rates (FY2025–26)
| Repayment income | Repayment rate |
|---|---|
| Below $54,435 | Nil |
| $54,435 – $62,850 | 1.0% |
| $62,851 – $66,620 | 2.0% |
| $66,621 – $70,618 | 2.5% |
| $70,619 – $74,855 | 3.0% |
| $74,856 – $79,347 | 3.5% |
| $79,348 – $84,107 | 4.0% |
| $84,108 – $89,154 | 4.5% |
| $89,155 – $94,503 | 5.0% |
| $94,504 – $100,174 | 5.5% |
| $100,175 – $106,185 | 6.0% |
| $106,186 – $112,556 | 6.5% |
| $112,557 – $119,309 | 7.0% |
| $119,310 – $126,467 | 7.5% |
| $126,468 – $134,056 | 8.0% |
| $134,057 – $142,100 | 8.5% |
| $142,101 – $150,626 | 9.0% |
| $150,627 – $159,663 | 9.5% |
| $159,664 and above | 10.0% |
Source: ATO, FY2025–26 thresholds. Rates apply to repayment income, not just HECS debt.
How Much Does HECS Reduce Borrowing Capacity?
The reduction in borrowing capacity depends on your income — higher earners have larger mandatory HECS repayments, which means a larger committed expense deducted before the serviceability assessment.
As a rough guide (assuming a 6.5% loan rate and 3% serviceability buffer at 9.5%):
| Income | Annual HECS repayment (estimate) | Approx. borrowing capacity reduction |
|---|---|---|
| $70,000 | ~$2,100 (3%) | ~$28,000–$35,000 |
| $90,000 | ~$4,275 (4.5%–5%) | ~$55,000–$65,000 |
| $110,000 | ~$7,150 (6.5%) | ~$90,000–$110,000 |
| $130,000 | ~$10,400 (8%) | ~$130,000–$155,000 |
These are approximate ranges — actual impact varies significantly with lender policies, your other committed expenses, and the loan product.
Key Facts About HECS and Borrowing
HECS is treated as a committed expense, not just a debt balance. The lender cares about the ongoing repayment, not the total outstanding balance. A large HECS debt that triggers a $7,000/year repayment has the same borrowing capacity impact regardless of whether the balance is $50,000 or $100,000.
All lenders must consider HECS repayments. Under responsible lending obligations (NCCP), lenders must account for known financial commitments. A compulsory HECS repayment is a known commitment that must be included in the serviceability assessment.
HECS doesn’t directly appear on your credit file. HECS-HELP debt doesn’t appear on a standard credit report. But lenders ask borrowers to declare all financial commitments, and HECS must be disclosed. If not disclosed and discovered later, it can be considered a material misrepresentation.
Joint applications: Both borrowers’ HECS repayments are included. A couple earning $90,000 each, both with HECS, may have combined repayments of $8,000–$9,000/year deducted from their serviceability assessment.
Repayment threshold changes. The HECS repayment threshold has been lowered in recent years, with the government bringing the start-point down from ~$48,000 (a few years ago) to $54,435. Repayments begin at a lower income than many people expect.
Should I Pay Off My HECS Before Applying for a Home Loan?
This is a common question with a nuanced answer.
The argument for paying off HECS first: Paying off your HECS reduces your committed expenses, which may increase your borrowing capacity. For borrowers on moderate incomes with significant HECS debt whose borrowing capacity is the binding constraint on purchasing, using savings to clear HECS might allow a meaningfully larger loan.
The argument against paying off HECS first: HECS-HELP debt does not accrue interest in the same way as commercial debt. It is indexed to CPI each June — in high-inflation years (2022: +3.9%, 2023: +7.1%) this can sting, but in normal times CPI indexation is much lower than any commercial interest rate.
If your home loan rate is 6–7% and CPI indexation is 2–4%, the home loan is more expensive per dollar than HECS. Using savings to pay HECS rather than increasing your deposit means:
- A smaller deposit → higher LVR → potentially higher rate or LMI
- Less capital at work in the property
A practical approach: Model both scenarios with a mortgage broker. If paying off $30,000 HECS increases your borrowing capacity by $90,000 (roughly 3× the HECS) and that increase is the difference between purchasing and not purchasing in your target market, it may be worth it. If you can purchase your target property without paying off HECS, the money is generally better deployed as a larger deposit.
Links to More Guides
- HECS Impact on Borrowing — Full Analysis
- Should I Pay Off HECS or Save a House Deposit?
- HECS Repayment Calculator — How Much Are You Paying?
- HECS and Joint Mortgage Applications
- HECS-HELP Guide — How the Student Loan System Works
Frequently Asked Questions
Do lenders check your HECS balance? They ask you to disclose it. HECS doesn’t appear on credit reports but must be declared. Some lenders access ATO data through open banking or from ATO notices. Failing to disclose a known HECS liability when applying for a loan is a misrepresentation.
Can I voluntarily repay HECS before applying? Yes. There is no restriction on voluntary HECS repayments. You can pay as much as you want directly to the ATO through myGov at any time to reduce or clear the debt. There’s no early repayment bonus — HECS now has no additional incentive for voluntary repayment (the 5% bonus was removed in 2022).
Is my HECS balance shown on my tax return? Yes — your HECS-HELP balance is shown on your ATO account on myGov. Your tax return includes your compulsory repayment amount each year.
For advice tailored to your situation, speak with a licensed mortgage broker or financial adviser. You can find one through the ASIC financial advisers register or MoneySmart.
Joint Applicants: Double HECS Impact
When two people apply for a mortgage together and both have HECS debts, both repayments are treated as committed expenses in the serviceability assessment. This can materially reduce a couple’s borrowing capacity compared to a couple with no HECS.
Example: Two people each earning $85,000 with $50,000 HECS debt each. Each has approximately a $3,825/year compulsory repayment (4.5%). Combined: $7,650/year in HECS repayments.
At 6.5% (9.5% buffer), $7,650/year in committed expenses reduces borrowing capacity by approximately $95,000–$110,000 versus a couple with no HECS.
HECS and HECS-HELP Indexation
HECS-HELP debt is not interest-bearing in the traditional sense, but it is indexed to CPI each 1 June. This means your HECS balance increases by the previous year’s CPI figure each year.
In normal years (2–3% CPI), indexation is modest. In 2023, CPI reached 7.1% — causing significant balance increases for people with large HECS debts. The government made a one-time adjustment following the 2023 indexation controversy, but indexation continues as the core mechanism.
For the purposes of the mortgage decision, indexation is a secondary consideration — the annual compulsory repayment is what affects borrowing capacity. However, for the “pay off HECS or save deposit” decision, high CPI indexation years tip the calculus toward faster voluntary repayment.
Other Impacted Loans — Private Loans (FEE-HELP, VET Student Loan)
The same compulsory repayment rules apply to all study loans under the HELP scheme, including:
- FEE-HELP (for full-fee-paying students)
- VET Student Loans (for vocational education)
- OS-HELP (for overseas study)
All are assessed on the same combined repayment income threshold. Lenders treat them identically to HECS in a serviceability assessment — they appear as one repayment obligation, not multiple.
Practical Tips for HECS and Home Loan Applications
Declare your HECS accurately. Lenders require disclosure of all financial commitments. Your HECS balance is visible to lenders via open banking and ATO data-sharing. Inaccurate disclosure is a misrepresentation on the loan application.
Get a pre-approval first. A formal pre-approval from a lender (or through a mortgage broker) will clearly show the impact of your HECS on your assessed borrowing capacity. This gives you an accurate number to plan around before you start seriously inspecting properties.
Speak to a mortgage broker. Broker access to multiple lenders means they can identify which lender’s serviceability model treats HECS most favourably for your income and debt profile. Some lenders assess HECS repayments differently (e.g., using lower repayment estimates for lower income earners), which can affect your borrowing capacity by $20,000–$50,000 between lenders.
Consider the First Home Guarantee. Eligible first home buyers can purchase with a 5% deposit without paying LMI — the government guarantees the gap. HECS debt does not disqualify you from the First Home Guarantee, though it will still affect your borrowing capacity assessment.