Are you planning to buy a home but worried your HECS-HELP debt could hold you back? You’re not alone—and the good news is, recent changes in lending policy may actually work in your favour. In this guide, we break down how your student debt affects borrowing power, the latest updates from lenders like CBA, and whether it’s worth paying off your HELP debt before applying for a mortgage. We’ll also share how working with a mortgage broker can help improve your borrowing power.
Hecs Debt And Your Home Loan: What’s Changing In 2025?
HECS Debt Relief 2025: 20% Debt Reduction
From 1 June 2025, the government automatically cut HELP debt balances by 20%—approximately a $5,520 reduction on average outstanding debt of $27,600.
The reduction applies retroactively and is handled automatically by the ATO—no action is required from borrowers.
HECS Home Loan Changes: New Lending Rules
From 30 September 2025, the Australian Prudential Regulation Authority (APRA) is introducing new guidance around how lenders assess HECS-HELP debt.
Previously, lenders always counted student debt as an ongoing financial liability. But under the new policy:
- Lenders can choose to exclude HECS/HELP debt if it will be repaid in full within 12 months.
- Some banks may reduce the servicing buffer if the debt is due to be cleared in the next 2–5 years.
Real-World Example: CommBank Changes
Commonwealth Bank (CBA) has already rolled out changes ahead of this regulatory update. Here is an example of how a couple’s borrowing power will change:
Borrower Profile | Before CBA Policy Change | After CBA Policy Change |
Couple earning $180,000/year | $840,000 borrowing power | $1.02 million |
These changes boosted borrowing capacity by $180,000, simply because the HECS debt was being repaid soon.
Expect other major lenders to follow suit closer to the deadline.
Tip: Be upfront with your mortgage broker about your HECS repayment timeline—it could change how your application is assessed.
How Do HECS/HELP Debt Work?
In Australia, citizens can borrow money from the Australian Government to pay their course fees. This loan is called HECS-HELP.
- Higher Education Contribution Scheme (HECS)
- Higher Education Loan Program (HELP)
During your studies, the Government pays the loan amount to your educational institution. Then, when you have finished studying and are earning an income, you begin your loan repayments. These repayments are made directly to the Australian taxation system and are often shown on your payslip.
Here is the fine print:
- Repayments start when your repayment income exceeds $67,000 (from 2025–26).
- You repay only on income above the threshold.
- Rates escalate up to 10% at higher income levels.
- Debt grows each June with indexation, though recent caps reduced spikes.
- From June 2025, eligible borrowers get a 20% loan balance reduction.
HECS Repayment Rates (2025–26 Income Year)
Here’s how your HELP repayment percentage changes with income:
RI Threshold Range | Repayment Rate |
Below $56,156 | 0% |
$56,156 – $64,837 | 1% |
$64,838 – $68,726 | 2% |
$68,727 – $72,851 | 2.5% |
$72,852 – $77,222 | 3% |
$77,223 – $81,855 | 3.5% |
$81,856 – $86,766 | 4% |
$86,767 – $91,973 | 4.5% |
$91,974 – $97,491 | 5% |
$97,492 – $103,341 | 5.5% |
$103,342 – $109,542 | 6% |
$109,543 – $116,115 | 6.5% |
$116,116 – $123,081 | 7% |
$123,082 – $130,466 | 7.5% |
$130,467 – $138,294 | 8% |
$138,295 – $146,593 | 8.5% |
$146,594 – $155,388 | 9% |
$155,389 – $164,711 | 9.5% |
$164,712 and above | 10% |
How Repayments Are Collected
- Your repayment income includes taxable income, net investment losses, fringe benefits, reportable super contributions, and foreign income.
- Employers withhold amounts via payroll, but actual repayment is confirmed at tax time through your tax return.
What Is HECS Indexation—And Why Has My Debt Gone Up?
HECS-HELP loans are interest-free—but they do get indexed every year based on inflation.
This means your debt grows slightly each year, even if you aren’t making repayments.
In June 2024, the indexation rate was 7.1%—the highest in years.
Original Debt | Indexation Rate | New Balance (Post-Indexation) |
$10,000 | 7.1% | $10,710 |
$25,000 | 7.1% | $26,775 |
So even if you paid $1,000 towards your loan in a year, the balance could still grow.
To check your indexed debt:
- Log in to myGov
- Go to your ATO account
- Check the “Loan Balances” section
Helpful Tip: Indexation applies every 1st of June, so if you’re planning a voluntary repayment, do it before May 31 to reduce the amount that gets indexed.
How Does A Hecs Debt Affect A Home Loan?
When applying for a home loan in Australia, your HECS-HELP debt can impact your borrowing capacity, even though it’s technically not considered a traditional debt like credit cards or personal loans. At the start of any loan application, you must disclose any outstanding debts—including your HECS-HELP loan.
Why Lenders Care About Your HECS-HELP Debt
While HECS-HELP doesn’t require regular fixed repayments, it still affects your repayment income. Depending on how much you earn, the Australian Tax Office may already be deducting repayments from your salary. Lenders factor these repayments in when calculating your debt-to-income ratio, which determines how much you can safely borrow.
Even if you’re not actively repaying the debt yet (because your income is below the threshold), lenders will anticipate future repayments and adjust your loan eligibility accordingly.
How Much Does HECS Affect Borrowing Power?
Student debt doesn’t come with interest—but it can still lower your borrowing power.
The general rule is:
Your borrowing power reduces by about 10× your annual HECS repayment.
So if you’re repaying 3% of your salary, you could see a 30% equivalent drop in how much income lenders count.
Example: Income vs HECS Repayment vs Borrowing Power
Annual Income | Repayment Rate | Annual Repayment | Borrowing Power Impact |
$60,000 | 1.0% | $600 | $6,000 |
$75,000 | 4.0% | $3,000 | $30,000 |
$100,000 | 7.0% | $7,000 | $70,000 |
$120,000+ | 10.0% | $12,000 | $120,000 |
Even if your HECS balance is small, repayments based on income still affect how much you can borrow.
Pro Tip: Close unused credit cards and reduce personal loan balances—these debts hurt borrowing power even more than HECS.
Read more: Calculate your borrowing power
Case Study: Sarah’s HECS Loan And How It Affected Her Home Loan
Sarah is a 32-year-old marketing coordinator in Brisbane. She earns $85,000 per year, rents an apartment, and has a small $1,450 HECS balance.
She also has:
- A $20,000 credit card limit (unused)
- $60,000 in savings for a deposit
Old Scenario (Before Policy Update):
- Lenders factored in both her HECS debt and the credit card limit.
- Borrowing power: $400,000
What Changed in 2025:
With the new APRA guidance and bank flexibility:
- The small $1,450 HECS balance can be excluded if repaid
- The $20,000 credit card limit was hurting her serviceability more than the HECS debt
Sarah’s broker suggested:
- Pay off the HECS balance voluntarily
- Reduce credit card limit to $2,000
Outcome:
Scenario | Borrowing Power |
With HECS + $20K credit card | $400,000 |
After repaying HECS debt | $480,000 |
After reducing credit card to $2,000 | $600,000 |
Sarah’s Result: With two small changes, she boosted her borrowing power by $200,000—and qualified for her dream unit with a study.
Why Can Credit Cards Have A Significant Impact On Your Home Loan?
While we’re on the topic of debt, let’s look at other forms of debt that can impact your loan.
Credit cards can significantly impact your loan, especially if you have a large credit limit available.
For example, Talulah has a $30,000 credit limit on her credit card. When she moved house, she spent $800 for a new couch on the credit card, and she is still slowly paying off. Yet when Talulah applies for a loan, the $800 is looked at, along with the total $30,000, which is removed from her borrowing capacity.
Why did a credit card make this big a difference?
Because at any moment, Talulah could potentially spend the other $29,200 available. This type of debt is considered BAD debt.
Talulah needs to lower her credit limit on the card to $1,000 so that the other $29,000 is not considered by the lender.
Each form of debt that you have will also be looked at and lower your borrowing capacity.
Other types of debt include:
- Car loan
- Credit card loans
- Personal loans (i.e. holiday loans)
- Afterpay and GoMoney Cards
So, try to reduce your overall debt in general before applying for a home loan.
Something else that catches people out is interest-free cards from Harvey Norman and Afterpay. Just like a credit card, while you may not be using this money and have nothing owing to your name, the lender will consider it potential money you could borrow. So, it’s best to close any of these accounts that are not in use.
If you’re getting a little excessive with Uber Eats or dining out a few nights a week, that’s also something to slow down on. Lenders will go through your bank statement with a fine-tooth comb, so start saving (or spending) money more responsibly to prepare.
How To Check HECS Debt?
Now that you have identified the effect of HECS debt on your borrowing capacity, it’s time to figure out the next step.
Do you know how much you’ve left to pay on your loan? And how can you minimise this? Let’s get right into it.
Checking HECS debt is easy. Jump on to your myGov account, and you’ll immediately see how much you’ve left to pay. If you don’t have an account, you can set up one through the ATO website.
How much are my HECS Repayments?
HECS repayments are determined by how much you’re earning. The lender will look at this percentage and take it off your entire loan.
So, let’s take a look at an example.
Case Study 2 – Layla’s HELP Debt
Layla is a 29-year-old junior doctor earning $105,000 per year. She has a HELP debt of $15,000 and wants to buy her first home in Melbourne.
Key Facts:
- Income: $105,000
- HECS Repayment Rate (2025): 7.5% → $7,875/year
- Deposit Saved: $90,000
- Other Debts: None
- HECS Balance: $15,000 (likely to be fully paid off within 2 years at current repayment rate)
Before HECS Policy Change:
Under traditional bank policies, lenders would factor her full HECS repayment into her borrowing power calculation, treating it like a recurring liability. This reduced her borrowing capacity by around $70,000.
After 2025 Policy Update:
Under APRA’s updated guidance, some lenders—like CommBank—can now ignore HECS debt if it’s likely to be repaid within 2 years.
Layla’s broker submits her application to CommBank, explaining:
- Her debt will be cleared in under 24 months based on her income
- She has no other liabilities
- She has a stable, high-earning profession
Outcome:
Scenario | Estimated Borrowing Power |
With HECS included | $520,000 |
HECS excluded (due to new rules) | $590,000 |
Layla’s Result: She was able to borrow an extra $70,000—enough to buy a two-bedroom apartment closer to work.
Read More: How Much Home Can I Afford [Calculator]
Should I Pay Off My HECS Before Buying A House?
Deciding whether to pay off your HECS-HELP debt before buying a house depends on your income, borrowing goals, and financial strategy. For most first-home buyers, you don’t need to pay off your HECS debt before getting a home loan—but there are pros and cons to consider.
When Paying Off HECS Might Help
Paying off your HECS debt could slightly improve your borrowing power, especially if your income is high enough that your HECS repayments are substantial. For example, if you earn $100,000, your HECS repayment rate is around 7–8%, which lenders will treat like a financial liability. Eliminating it can boost how much you’re allowed to borrow.
Consider paying it off first if:
- You’re close to repaying the full balance anyway
- Your borrowing capacity is just short of the property you want
- You’re applying with a lender that heavily penalises HECS in their serviceability calculator
When It’s Better to Keep the HECS Debt
HECS is an interest-free loan indexed annually to inflation, which means it’s one of the cheapest debts you can carry. If you’re saving for a deposit or aiming to buy sooner, putting that money toward your home loan or upfront costs may have a greater financial impact.
Keeping your HECS may make more sense if:
- You’re early in your career or earning under the repayment threshold
- You’re prioritising a larger deposit or avoiding Lenders Mortgage Insurance (LMI)
- You’d prefer to invest in assets that might grow faster than inflation
Should I Make Voluntary Repayments?
This depends on where you sit with your financial situation.
- If you ONLY have HECS debt
- have no other forms of debt,
- you need to increase your borrowing capacity,
- AND you have some spare cash…
Well, why not? You can make voluntary repayments.
But if you have other sources of debt that are considered bad debt, like personal loans, car loans and credit cards, which have much higger interest rates, then this is where you should start because this form of debt is considered bad debt.
After that, student debt follows.
And then money into property and shares, which are considered good debt, can come into play.
In summary, student debt isn’t “make or break” when it comes to applying for a home loan. The good thing is that most people have HECs/HELP debt. So, it’s a pretty common aspect of applicants applying for a home loan.
What happens if I still have a high HELP balance?
f you’re still sitting within a reasonable amount left on your HECS debt—say, over $10,000, and it would be taking a significant amount off your savings to pay it off, then wait…
In this case, it’s not worth paying it off because it will leave you with less for other expenses.
The more critical debts to get rid of are car loans, personal loans and credit cards.
The ultimate goal should be to save for a deposit. HECS has no interest and takes off a small amount of your income. So, paying it down gradually works just as well.
How can I Improve My Chance Of Qualifying For A Home Loan With HECS Debt?
Yes, HECS debt adds a little extra hurdle to your loan application. But the good news is, there are a few ways to improve your chances of qualifying.
Reduce existing debt
Sorry to sound like a broken record, but reducing existing debt is a great way to increase your chances of home loan approval. Consolidate your debt where you can. However, pay attention to different interest rates that come with different terms. Adding the debt to your new mortgage is not always a good idea.
Why? Because it’s a 30-year time frame that will significantly add to your overall interest paid.
Check your credit
Good credit. Bad credit. Some credit. No credit. If you’re unsure where your credit stands, get in touch with our team to review.
Some people do a credit check and find out they’ve got bad credit without realising it. It could be anything, like a missed payment from over five years ago while you were overseas.
So before you apply for a loan, always do a credit check. This will help your mortgage broker determine the best lender for you, depending on your credit record. You will then be able to take steps to improve your credit status once you know where you stand.
Save, save, save away.
You might be sick of hearing the s-word, but it is the truth… Before you’re ready to apply for a home loan, make sure that you have been steadily Saving for at least three months.
Regular deposits into a savings account will show the lender that you are disciplined.
Speak to us ( mortgage brokers)
We are here to help you.
You can ensure that you qualify for a loan by speaking to a broker before proceeding with your application.
Your broker will check that you have all the paperwork and strategies in check. And they will also negotiate for the best rates on your behalf. #winning
If you would like to chat, contact our mortgage brokers or call us on 1300 088 065.
Be honest and always be conservative with income and asset estimation.
As we said about telling your broker about the HECS debt, try to establish a transparent and honest approach with them regarding your income and assets. After all, your income is shown on your payslip.
What about your yearly earnings? Many first-home buyers include their superannuation in their yearly income. But since this money doesn’t go into your pocket, it should be left out.
Making a sound estimate will help you stay in a stronger financial position later on…
We see all kinds of situations every day, deal with financial stress, and encounter unique situations all the time. So there is no need to be embarrassed about your financial situation. We’ve probably heard it before, anyway!
Make sure to include all expenses.
Any extra expenses, like childcare or phone bills that you haven’t factored in are essential. So, sit down and make a comprehensive list of all your monthly expenses. The lender will use this to determine how much you can afford to make in repayments.
Overapplying won’t help.
Every time you apply for a home loan, the lender will review your credit file. This review process is added to your credit file.
The next lender will be able to see a history of each time you have applied for a loan. And since no outcome is stated on your credit file, they will assume your previous application was unsuccessful. This history can be seen as a red flag by lenders.
In summary, only apply for a loan when you’re 100% ready and have all your ducks in a row.
FAQs - How Does Hecs Debt Affect Home Loans
What is the current HECS indexation rate?
As of June 2024, the HECS-HELP indexation rate was 7.1%. This means your debt increased by 7.1% if it remained unpaid.
How much does my HECS debt reduce my borrowing power?
On average, lenders reduce your borrowing power by around 10× your annual repayment. If you repay 5% of income, you could lose borrowing capacity equal to 50% of that income.
Will lenders ignore my HELP debt soon?
Yes. From 30 September 2025, lenders can ignore HELP debts that will be fully repaid within 12 months
Which banks have already changed their policy?
Commonwealth Bank (CBA) now excludes HELP debt from serviceability if it’s being repaid in under 12 months. They also reduce buffers on debts repaid within 2–5 years.
Is it worth paying off my HELP debt before applying for a home loan?
It can be—especially if your remaining debt is small and holding you back from borrowing more. Paying it off can improve your borrowing capacity.
What income do I need to start repaying HECS?
You start repaying your HECS debt when your income exceeds $54,435 per year. Repayment rates range from 1% to 10%, based on income.
How can I check my HELP debt balance?
Log in to your myGov account, then go to your ATO profile. You’ll find your HELP balance and indexation history there.
How to make your HECS debt easier to pay off?
Make voluntary payments when you can. Use tax refunds, bonuses, or spare cash to reduce your balance before indexation hits.
Is HECS a personal loan?
No, HECS-HELP is a government student loan, not a personal or commercial loan. It doesn’t accrue interest but is indexed annually.
Does HECS loan have interest?
Not in the traditional sense. HECS debt is interest-free, but it is indexed yearly to inflation (CPI), which can still grow your balance.
Should I pay off my HECS debt before buying a house?
Not always. If it’s small and your borrowing capacity is tight, it might help. But it’s often better to prioritise your home deposit.
How do HECS debts work?
HECS-HELP is a government loan for uni students. You repay it through the tax system once you earn above the income threshold. It’s indexed each year but doesn’t charge interest.
Next Steps And Getting Your Home Loan
Our team at Hunter Galloway is here to help you buy a home in Brisbane. Unlike other mortgage brokers, who are one-person operations, we have an entire team of experts dedicated to making your home loan journey as simple as possible.
If you want to get started, please give us a call on 1300 088 065 or book a free assessment online to see how we can help.
Start again
