HECS Debt and Your Borrowing Power: A Guide for First-Home Buyers in Australia

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.

HECS repayments reduce your usable income. When lenders assess you for a home loan, they look at your income versus expenses to judge “serviceability” – your ability to repay the loan. Any mandatory HECS repayment is treated as an ongoing expense or a reduction of your income, which can cap the loan amount you’re eligible for​

In practical terms, money being diverted to the ATO for your HECS can’t be used to pay a mortgage​. For example, if you earn $90,000 a year and must repay about $5,000/year to HECS, the bank considers that $5k as money not available for home loan repayments​. The result? Your maximum borrowing capacity might drop – sometimes by a factor of about 10x your annual HECS repayment​.

Borrowing power with vs. without HECS: Take James, for example — a marketing executive earning $85,000 a year and carrying a HECS-HELP debt of $30,000. Because of his compulsory HECS repayments (around $4,500 annually), his bank was willing to lend him approximately $410,000 for a home loan. Without HECS debt, his borrowing capacity could have increased to roughly $460,000.

This example shows HECS won’t prevent you from getting a home loan, but it can shave tens of thousands off the amount you could otherwise borrow.

HECS vs other debts in serviceability: The effect of HECS on borrowing power, while notable, is often less severe than other common debts like credit cards or personal loans. Lenders know HECS is widespread and automatically deducted (more like a tax), so they tend to view it as a lower-risk obligation​. It doesn’t appear on your credit report and doesn’t directly hurt your credit score.​

By contrast, a maxed-out credit card or car loan can significantly impact your debt-to-income (DTI) ratio and borrowing capacity. In fact, closing a $20,000 credit card facility can boost your borrowing limit by about $120,000.​

So, while HECS repayments do reduce the income you can put toward a mortgage, lenders generally consider them “a fact of life” for younger borrowers and focus more on harsher debts. As one lender put it, HECS is factored into DTI (debt-to-income) calculations and can slightly limit loan size, but it’s far less obtrusive to your borrowing power than credit card debt​.

Salary thresholds matter: Remember that HECS repayments kick in only once your income passes a certain threshold. The ATO’s HECS repayment brackets are income-based: for 2024–25, anyone earning below $54,000 pays nothing, but above that, the repayments start at 1% of income and gradually scale up, capping at 10% for very high incomes​. This means if you’re just at the start of your career with a modest income, your compulsory HECS repayment may be quite small (or zero), having minimal impact on borrowing capacity. Higher earners pay a larger percentage, which has a bigger effect on serviceability. 

However, lenders don’t care about the total HECS debt you owe, just the ongoing repayment amount​. Whether your HECS balance is $5,000 or $50,000, what matters is how much of your paycheck is currently going toward it.

When you apply for a home loan, you must disclose all debts and liabilities, including your HECS-HELP balance​. Every major bank and lender will factor in any HECS repayment obligation as part of assessing your ability to repay the new loan. In this sense, HECS is treated similarly to other debts during serviceability checks – you must show you can cover both your HECS and the prospective mortgage repayments comfortably.​

Your debt-to-income ratio (DTI) will include HECS, which can slightly worsen the ratio (since HECS adds to “debt” and effectively lowers net income)​. A lower DTI is ideal for borrowing; HECS can nudge it higher, but usually not dramatically unless your HECS repayment is hefty relative to income.

That said, not all lenders treat HECS exactly the same way. There can be nuanced differences in lending criteria:

Assessment approach: Some lenders treat HECS as a reduction in your pre-tax income, while others list it among monthly expenses. Either way, it ends up similar, but double-counting can occur. In fact, NAB has noted that because HECS is taken out pre-tax while banks assess post-tax income, it used to result in “double counting”.  Lenders are now adjusting this.

Leniency and thresholds: Certain banks or non-bank lenders may be a bit more forgiving if your HECS debt is small or nearly paid off. Different lenders have different policies; some apply stricter limits, while others are more flexible with borrowers who have HECS​. For example, a borrower with a nearly cleared HECS might find one lender willing to ignore that small remaining debt, whereas another lender might still count the standard repayment percentage until it’s fully gone. This is where a mortgage broker can help “shop around” for a lender with a more favourable view of HECS​.

Credit perspective: Unlike a personal loan or credit card, a HECS debt does not show up on your credit file, and there’s no interest charged, only inflation indexing. Lenders understand this. As long as you’re meeting the required HECS payments via the tax system, it doesn’t carry the same risk weight as, say, missing payments on a car loan. Many lenders even consider HECS a “safer” kind of debt since repayments adjust with your income and are automatically enforced​.

In other words, HECS is often seen as a different type of debt than a bank loan​

– it’s an obligation, but it doesn’t indicate bad credit or poor money management because you had no choice in taking it on for study.

Regulatory changes: In February 2025 APRA opened a consultation proposing (1) to remove HELP debts from the debt-to-income metric that banks report, and (2) to let lenders ignore HELP repayments when the debt will clear within 12 months. These are proposals only; any rule change would not start until 30 September 2025 at the earliest, so the usual treatment still applies today.

The key takeaway for borrowers: be transparent about your HECS debt with your lender or broker, and know that policies can vary. Lenders will definitely include your HECS repayment in the numbers, but some may be more generous than others in how they calculate its impact.​

If one bank’s loan offer is lower than you’d hoped because of HECS, it’s worth exploring with a broker whether another lender might approve a higher amount, especially if your overall profile is strong. As always, the rest of your financial picture matters more – banks pay far more attention to your employment, income stability, genuine savings, and other debts. A HECS debt is so common that, by itself, it isn’t seen as a red flag; it’s just another line item in the maths.

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.

Understanding how HECS debt itself works will shed light on why it affects borrowing power the way it does. HECS-HELP (Higher Education Contribution Scheme) is a government-run student loan system. The Australian Taxation Office (ATO) handles HECS repayment through the tax payroll system.​

Here are key features of the HECS repayment structure that matter:

In summary, government policy makes HECS a relatively gentle form of debt (income-based payments, no interest, pauses when income is low). However, until your HECS is fully paid, it will affect your net income and, thus, your mortgage borrowing capacity. Staying informed on threshold changes and any new incentives is wise. For now, success lies in working within the system: understanding how banks view your HECS and planning accordingly, rather than HECS being an insurmountable barrier.

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:

In summary, strategy is key when preparing to buy a home with a HECS debt. Often, it’s a balancing act: you want to minimize 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.

James graduated with an expensive postgraduate degree and had a HECS-HELP debt of about $60,000. He earns $100k/year in a stable job. His compulsory HECS repayment is 6% of his income under current thresholds. James was concerned this would kill his chances of a home loan. A mortgage broker ran the numbers: with the HECS, James qualified for roughly a $500k loan; without HECS, it might have been about $560k. The $60k difference was unfortunate but not a deal-breaker. 

The broker advised James not to rush to pay off that large HECS balance before buying since it would consume most of his $70k savings and still wouldn’t cover it fully. Instead, James put $60k toward a house deposit, kept paying HECS through his salary, and used the federal First Home Guarantee to buy with a 5% deposit and no LMI. He purchased a $630k townhouse with a $30k deposit and a $600k loan. His HECS continues to be deducted from his pay, but he comfortably budgets for his mortgage and HECS. 

Insight: Even a big HECS debt didn’t stop James from buying; it reduced the loan amount a bit, but government schemes and a good savings plan made up the difference. His broker noted many clients in their 20s and 30s have HECS, and lenders are used to it. The key is focusing on what you can control (income, other debts, deposit) more so than the HECS unless there’s an easy opportunity to eliminate it.

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:

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​. Essentially, you could borrow up to 105% of the property price because the lender has extra security from your guarantor. For a buyer with HECS, a guarantor support can offset the fact that your borrowing capacity is a bit lower – the guarantor gives the bank more confidence, which might enable a larger loan than your income alone supports. Keep in mind that the guarantor is legally on the hook if you default, so it’s a big ask of the family. However, many first-home owners have used this route successfully to get into a house sooner. HECS doesn’t really factor differently here; you’d still need to meet serviceability as the bank won’t lend more than you can afford. However, the guarantor can solve the deposit and LMI issues, letting you maximize the loan amount you qualify for. Talk to lenders about Family Guarantee options if your parents or siblings are willing and able to help – it can make a huge difference in getting your foot on the property ladder.

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:

Read more: First Home Guarantee Scheme

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.

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.

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​. Always compare interest rates and terms, though – you don’t want to pay a steep premium unless necessary.

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.

Finally, let’s address some frequently asked questions and worries that first-home buyers often have about HECS and borrowing:

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.