Buying your first home is exciting, but if you’re one of the millions of Australians with a HECS-HELP debt from university, you might be wondering how that student loan affects your home loan prospects. In fact, as of the 2023–24 financial year, Australia’s outstanding HECS-HELP debt has risen to approximately $81.05 billion, up from $78.2 billion in 2022–23. The good news is lenders won’t automatically reject your mortgage application just because you have a HECS debt
However, HECS can influence your borrowing capacity – essentially, how much you can comfortably borrow – so it’s important to understand the details. This comprehensive guide breaks down everything you need to know, from how HECS impacts loan calculations to strategies for improving your borrowing power through the use of an award-winning mortgage broker in Brisbane.
1. Impact Of HECS Debt On Borrowing Capacity
HECS repayments reduce your usable income.
When assessing a home loan application, lenders compare your income against your expenses. They treat compulsory HECS repayments as money that cannot be used to support mortgage repayments.
As a result, HECS can reduce the amount you can borrow.
For example, if you earn $90,000 per year, the lender will factor your annual HECS repayment into its serviceability calculations. That income is not available to support a larger home loan.
Borrowing Power: With vs Without HECS
Consider James, a marketing executive earning $85,000 per year with a $30,000 HECS-HELP debt.
His annual HECS repayments are approximately $2,700.
Based on his circumstances, a lender may approve a home loan of around $410,000. Without HECS repayments, his borrowing capacity could increase to roughly $460,000.
Actual borrowing capacity varies between lenders and individual circumstances.
While HECS rarely prevents someone from qualifying for a home loan, it can reduce borrowing power by tens of thousands of dollars.
HECS vs Other Debts
The impact of HECS is usually less severe than credit cards or personal loans.
HECS does not appear on your credit report and does not directly affect your credit score.
Lenders generally view HECS as a lower-risk obligation because repayments are automatically deducted through the tax system.
By comparison, a large credit card limit or car loan can have a much greater impact on borrowing capacity.
In many cases, reducing or closing a large credit card limit can increase borrowing capacity significantly.
Income Thresholds Matter
Recent changes have reduced the impact of HECS on many borrowers.
From the 2025-26 financial year, compulsory HELP repayments do not begin until your income exceeds $67,000.
In addition, Australia now uses a marginal repayment system. This means repayments apply only to the portion of your income above the $67,000 threshold.
Under the previous system, repayment rates applied to your entire income once you crossed the threshold.
As a result, many borrowers now make lower compulsory repayments.
This can improve borrowing capacity because less income is allocated to HELP repayments.
The 20% HELP Debt Reduction
The Federal Government has also introduced a one-off 20% reduction to eligible HELP debts.
The reduction applies to HELP and other student loan balances that existed on 1 June 2025.
For many borrowers, this has significantly reduced their outstanding student debt.
While lenders generally focus on your current repayment amount rather than your total balance, a lower debt balance may help if your HELP debt is likely to be repaid sooner.
Combined with the higher repayment threshold and marginal repayment system, these reforms have improved the position for many first-home buyers and property investors.
2. How Lenders View HECS Debt (Policies & Criteria)
Historically, lenders included HECS-HELP debt when calculating a borrower’s debt-to-income (DTI) ratio.
A higher DTI can reduce borrowing capacity because it indicates a greater debt burden. However, recent regulatory changes have improved the position for many borrowers with HECS debt.
Different Lenders Use Different Methods
Not every lender assesses HECS in the same way.
Some lenders treat HECS repayments as a reduction to your income. Others include them as an ongoing expense.
While both approaches measure affordability, they can produce different borrowing limits.
In the past, some borrowers faced a form of double counting. This occurred because HECS repayments reduced income before tax, while lenders assessed borrowing capacity using after-tax income.
Many lenders have since refined their assessment methods.
Some Lenders Are More Flexible
Lender policies can vary significantly.
For example, some lenders may take a more favourable view if:
- Your HECS debt is likely to be repaid soon.
- Your remaining balance is relatively small.
- Your overall financial position is strong.
Meanwhile, other lenders may continue to apply their standard assessment policies until the debt is fully repaid.
This is where a mortgage broker can help. They can compare lender policies and identify lenders with a more flexible approach.
Recent APRA Changes
APRA has removed HELP debts from the debt-to-income metrics that banks report to regulators.
In addition, APRA has clarified that lenders may make exceptions to their normal serviceability policies when a HELP debt is expected to be repaid within 12 months.
This gives lenders more flexibility when assessing borrowers who will soon finish making HELP repayments.
However, each lender decides how and when to apply these exceptions.
As a result, borrowing outcomes can still vary between lenders.
Case Study: Navigating a Mortgage with HECS
Emily is a 29-year-old first-home buyer earning approximately $78,000 per year. She had a small HECS debt remaining—just under $2,000—and a $15,000 credit card limit. Initially, she was offered a home loan of $360,000.
After speaking with her mortgage broker, Emily decided to pay off her remaining HECS debt in full. This boosted her borrowing capacity by $70,000, increasing it from $360,000 to $430,000, as the HECS repayment was no longer deducted from her income.
She also significantly reduced her credit card limit—from $15,000 to $1,500—which further improved her borrowing power.
Ultimately, Emily was approved for a home loan of around $500,000. Combined with her savings, she was able to purchase a $550,000 townhouse.
Key takeaway: Even a small HECS debt can have a noticeable impact on borrowing power if it’s affecting your take-home pay. By paying it off, Emily removed that barrier. Her broker also considered lenders who might overlook such a small balance, showing that there’s often more than one path to achieving your goal. Reducing her credit card limit was another smart move that helped increase her loan approval.
3. Government Policies & HECS Debt Repayment Structure
Understanding how HECS-HELP works helps explain its impact on borrowing power. HECS-HELP is a government-backed student loan scheme. The Australian Taxation Office (ATO) manages repayments through the tax system.
Several features make HECS different from other forms of debt. We touched a little on them above, but in this section we will provide more in-depth information.
Income-Based Repayments
You only start repaying HECS when your income exceeds the minimum repayment threshold. For the 2025-26 financial year, that threshold is $67,000.
Australia now uses a marginal repayment system.
This means repayment rates apply only to the portion of your income above the threshold. As your income increases, your repayment amount also increases.
However, if your income falls below the threshold, compulsory repayments stop. This system keeps repayments affordable and linked to your earnings. As a result, many lenders view HECS more favourably than traditional debt.
Collected Through the ATO
The ATO collects HECS repayments automatically through the tax system. Your employer withholds the required amount from your salary, much like income tax.
When assessing a home loan application, lenders review your payslips and tax records. They can see how much of your income goes towards HECS repayments. In practice, lenders treat HECS as an ongoing financial commitment. That reduces the income available to support mortgage repayments.
No Interest, But Indexation Applies
HECS debts do not charge interest like a credit card or personal loan. Instead, the balance increases through annual indexation. Since 2025, indexation has been capped at the lower of:
- The Consumer Price Index (CPI); or
- The Wage Price Index (WPI).
This change helps prevent student debt from growing faster than wages during periods of high inflation.
The 20% HELP Debt Reduction
The government introduced a one-off 20% reduction on eligible student debts in 2025. The reduction applied to HELP and other student support debts that existed on 1 June 2025.
The ATO applied the reduction automatically. Any indexation applied on that date was recalculated using the lower balance. For many Australians, this significantly reduced their outstanding student debt. It also helped some borrowers reach repayment completion sooner.
Policy Changes Supporting Borrowers
Recent policy changes have made HECS less of a barrier for home buyers.
As we mentioned before, APRA has removed HELP debts from the debt-to-income metrics that banks report to regulators. APRA has also clarified that lenders may make exceptions when a HELP debt is expected to be repaid within 12 months.
As a result, some borrowers may receive a more favourable serviceability assessment. However, each lender applies its own lending policies. This means outcomes can still vary from one lender to another.
4. Strategies to Improve Your Borrowing Power With a HECS Debt
Don’t let your HECS-HELP balance discourage you – there are plenty of ways to boost your borrowing power and make your home loan application more attractive:
- Pay down other debts first: Focus on clearing high-interest debts like credit cards, car loans, or personal loans before worrying about extra HECS repayments
. Other debts typically weigh more heavily on your borrowing capacity because they come with interest and fixed repayments. Every dollar of credit card limit or personal loan monthly payment you can eliminate will free up more income for a mortgage. For example, as seen earlier, a large credit card limit can slash your borrowing power significantly – so reducing limits or closing unused cards helps a lot . By comparison, HECS is low-cost debt, so financial experts often advise prioritizing other liabilities first . - Consider (but don’t rush) paying off HECS early: If your HECS debt is small or nearly paid off, wiping it out ahead of your home loan application can give your borrowing capacity a quick boost. Removing that 1-10% income deduction effectively increases the income a lender can use in calculations
. However, you shouldn’t automatically throw all your savings at your HECS for this reason. Weigh the trade-offs: If paying off HECS would leave you short of a house deposit or emergency savings, it might not be worth it . Lenders generally don’t consider how long you have until the HECS is paid off, only what you’re paying now. But if your borrowing capacity is already sufficient or you need every dollar for the deposit and fees, you’re usually better off leaving the HECS and focusing on other improvements. - Boost your deposit (savings): The more cash you contribute up front, the less you need to borrow, and the stronger your loan application looks. A bigger deposit can directly increase how much a bank will lend you, and it also lowers your loan-to-value ratio (LVR), which can get you better interest rates or avoid Lenders Mortgage Insurance. Lenders love to see genuine savings and a cushion of funds, as it demonstrates financial discipline
. If HECS repayments are eating a bit of your income, compensating by saving extra over time can show you still manage to build your deposit despite that. Whether it’s cutting unnecessary expenses or perhaps using schemes like the First Home Super Saver to turbocharge your savings, every additional dollar in deposit improves your borrowing position.
- Reduce expenses & tighten your budget: Beyond debts, lenders look at your living expenses. Take a hard look at your monthly spending and see if you can trim it for a few months before and during your application. Lower expenses mean more surplus income available for loan repayments. When a HECS repayment is non-negotiable, controlling the discretionary spending that is negotiable can effectively offset it. Create a budget that accounts for your HECS debt payment, and practice making the “would-be” mortgage payments now to prove to yourself and in bank statements that you can handle it. This not only increases serviceability on paper but also prepares you for homeownership costs
. - Lower your credit limits: If you have credit cards or buy-now-pay-later accounts, consider reducing their credit limits or closing ones you don’t need. Lenders assume a percentage of all credit card limits could be used and require you to have income to service that, even if you owe nothing currently. By minimizing available credit, you improve your debt-to-income profile
. - Increase your income (if possible): This might be easier said than done, but any raise, promotion, or extra income (overtime, side hustle, etc.) will directly improve your borrowing power. Since HECS repayments are proportional, part of any extra income will go to HECS, but you still net more money that can go toward a mortgage. And if a raise pushes you into a higher HECS bracket, it’s usually only a small extra percentage. Overall, higher income not only dilutes the impact of HECS but strengthens every aspect of your application. Just be mindful that new income should be stable and taxable – undeclared cash-in-hand won’t count. Some borrowers even delay their home loan application until after they’ve gotten an annual bonus or salary bump that they know is coming – that improved income with only a modest HECS increase can raise the loan amount you qualify for
. - Use windfalls or bonuses wisely: If you receive a tax refund, work bonus, or any lump sum, consider using a portion to make a voluntary HECS repayment if that will meaningfully change your HECS repayment percentage bracket. For instance, paying down your balance to drop you below a threshold from requiring 5% of income to 2% could immediately free up a few per cent of your salary in the bank’s eyes. However, check the thresholds carefully – if a bit of extra repayment won’t change your required percentage, you might instead add that money to your deposit or pay off another debt. Remember, voluntary HECS payments are irreversible; ensure it’s the best use of your funds relative to boosting your home loan prospects.
In summary, strategy is key when preparing to buy a home with a HECS debt. Often, it’s a balancing act: you want to minimise the impact of HECS without undermining your savings for a deposit or other financial goals. In many cases, improving other aspects of your profile, paying down debt, saving more, and adjusting spending will yield a bigger bang for your buck than rushing to zero out your HECS.
Every borrower’s situation is different, so consider talking to a financial adviser or mortgage broker who can quantify the effect of various moves. With the right approach, you can present a strong loan application and achieve home ownership without needing to be HECS-free.
Case Study: First-Home Buyer with Significant HECS
James graduated with an expensive postgraduate degree and accumulated a HECS-HELP debt of around $60,000.
He earns $100,000 per year in a stable full-time role.
Under the current repayment system, James only makes compulsory HELP repayments on the portion of his income above the minimum repayment threshold of $67,000.
Despite this, James worried that his HECS debt would seriously reduce his borrowing power.
A mortgage broker ran the numbers.
With his HECS repayments, James qualified for a home loan of around $500,000.
Without HECS repayments, his borrowing capacity may have increased to approximately $560,000.
While the difference was noticeable, it was not enough to prevent him from entering the property market.
The broker advised James not to rush to repay his HECS debt before buying.
Doing so would have consumed most of his $70,000 savings and still would not have cleared the debt completely.
Instead, James used $60,000 towards his home purchase and continued making HELP repayments through the tax system.
He also accessed the First Home Guarantee, which allowed him to buy with a 5% deposit and avoid lenders mortgage insurance (LMI).
As a result, he purchased a $630,000 townhouse with a $30,000 deposit and a $600,000 home loan.
His HELP repayments continue to be deducted from his salary.
However, he comfortably manages both his mortgage and student debt obligations.
Key takeaway: Even a substantial HECS debt did not stop James from buying a home. While it reduced his borrowing power, a strong income, solid savings and access to government support helped bridge the gap.
According to his broker, HECS debt is common among borrowers in their 20s and 30s. Most lenders are accustomed to assessing it.
In many cases, borrowers achieve better results by focusing on their income, deposit and other debts rather than trying to eliminate HECS before applying for a home loan.
5. Alternative Loan Options and First-Home Buyer Support
Having a HECS debt doesn’t disqualify you from any first-home buyer programs or special loan options. In fact, you can take advantage of several schemes and alternative lending solutions to get into the property market sooner, even if HECS has reduced your borrowing power slightly:
Guarantor home loans
One way to overcome borrowing limits or a small deposit is a guarantor loan (often called a Family Guarantee). This is when a parent or close family member uses their own property’s equity to secure part of your loan. It can allow first-home buyers to buy with little or no deposit and avoid Lenders’ Mortgage Insurance
First Home Guarantee Scheme (FHBG)
The Australian Government’s Home Guarantee Scheme (previously the First Home Loan Deposit Scheme) is designed to make it easier for first-home buyers to enter the property market sooner.
Under the First Home Guarantee, eligible buyers can purchase a home with just a 5% deposit and avoid paying Lenders Mortgage Insurance (LMI). Instead of needing a full 20% deposit, the government effectively guarantees up to 15% of the loan, reducing upfront costs significantly.
This doesn’t increase your income-based borrowing power. For example:
- If you have a HECS-HELP debt and a lender is only willing to lend you $400,000 instead of $450,000,
- Normally, you’d need an $80,000 deposit (20%).
- With the scheme, you only need $20,000—a difference that can mean buying now instead of waiting years.
Key Features of the Home Guarantee Scheme (from 1 October 2025)
- Buy a home with just a 5% deposit.
- No LMI, saving you between $10,000 and $25,000.
- Unlimited places (previously capped at 35,000 per year).
- No income caps – the scheme is now open to all eligible buyers regardless of earnings.
- Higher property price caps, making it easier to buy in capital cities and regional centres.
- Must be for a home you will live in—not an investment property.
- Can be combined with other government incentives, such as the First Home Owner Grant (FHOG) and stamp duty concessions.
Read more: First Home Guarantee Scheme
First Home Owner Grant (FHOG) & Other Grants:
Most states offer a First Home Owner Grant for buying or building a new home. The amount and criteria vary by state. For example, $10k to $20k grants are common for new builds for first-time buyers. There are also stamp duty concessions or exemptions in many states for first homes under certain price thresholds.
While these grants don’t directly increase your borrowing power, they effectively boost your available funds – which might help you secure a loan or afford a slightly higher purchase price. If you have a HECS debt, getting a $15k grant can offset the fact that you didn’t save that money because some of your income went to HECS. It can also reduce the loan amount you need. Always research what government incentives are available in your state: first-home buyer grants, stamp duty relief, and even new schemes like the Regional First Home Buyer Guarantee or specific profession-based assistance can collectively save you tens of thousands.
Shared equity schemes
In some regions, there are shared equity programs where the government or a provider co-buys a percentage of the property with you. For instance, the planned federal Help to Buy scheme or state programs let eligible buyers purchase a home with government funding up to about 30% in exchange for that share of ownership. In practice, this means you’d need a smaller loan since you aren’t borrowing the full property value. If your HECS debt limits your ability to borrow enough for a full house price, a shared equity arrangement might bridge the gap by effectively reducing the loan needed. You’d need a smaller deposit as well, often proportional to your share. Be aware, shared equity means the government or partner owns part of your home equity, and you might have to buy them out later or share capital gains. It’s not for everyone, but it’s worth mentioning as an alternative path to ownership if traditional borrowing capacity falls short.
Non-bank lenders and specialized loans
Apart from the big banks, there are credit unions, building societies, and specialist non-bank lenders that might take a different view on your application. All lenders must be responsible, but some non-bank lenders might use more tailored credit assessment models. For example, certain lenders might allow a slightly higher debt-to-income ratio if everything else checks out, or they may understand HECS as a “soft” commitment more. Non-bank lenders also sometimes offer products like “interest-only for first year“ or other structures that can ease initial affordability. It’s not that any lender will ignore a HECS debt completely, but a mortgage broker could identify lenders that are more flexible for a borrower in your situation
Low-deposit loans with LMI
If schemes or guarantors aren’t available to you, most lenders will still loan up to 90-95% of the property value if you pay Lenders Mortgage Insurance. LMI is an insurance premium that protects the lender (not you) in case of default and can be added to your loan. While paying LMI isn’t ideal, it allows you to borrow more with a smaller deposit. For a first-home buyer with HECS, this means you don’t have to postpone buying until you save 20% deposit. You might get in with a 5% or 10% deposit, borrow the rest, and accept the added cost of LMI. From a borrowing power perspective, lenders will still check if you can afford repayments, including the LMI-added loan, but they won’t require as large a deposit. Just be mindful of not stretching yourself too thin. Sometimes, taking a slightly smaller loan and avoiding LMI via a scheme or guarantor is better if possible.
6. FAQs For First-Home Buyers with HECS Debts
Finally, let’s address some frequently asked questions and worries that first-home buyers often have about HECS and borrowing:
Next Steps And Getting Your Home Loan Approved
Are you ready to buy your first home but unsure how your HECS debt will affect the process? Our team at Hunter Galloway is here to help you buy a home in Australia. Unlike other mortgage brokers who are just one-person operations, we have an entire team of experts dedicated to helping make 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.
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