How HECS Debt Affects Your Home Loan Borrowing Power

If you studied at university in Australia, there's a good chance you're carrying a HECS-HELP debt into your home buying years. It's common, it's manageable, and for most people it sits quietly in the background - until they apply for a home loan and discover it's had a bigger impact on their borrowing power than they expected.

Here's what you need to understand about HECS debt and home loans, and the steps you can take to improve your position.

How HECS Affects Your Borrowing Power

When a lender assesses your home loan application, they're trying to work out whether you can comfortably service the repayments. To do that, they look at your income and subtract your committed expenses - including your HECS repayment obligations.

HECS repayments are calculated as a percentage of your income and are deducted from your pay once your earnings exceed the minimum repayment threshold. For the 2025-26 financial year, repayments kick in at around $54,000 in taxable income, starting at 1% and rising to 10% at higher income levels.

The critical point: lenders treat your HECS repayment as a recurring committed expense. It reduces your net usable income in their assessment - which directly reduces how much they'll lend you.

Annual income: $95,000 HECS repayment rate at this income: approximately 4.5% Annual HECS repayment: approximately $4,275 Monthly impact on serviceability: approximately $356

On a typical lender assessment, each $100 per month reduction in usable income reduces borrowing capacity by approximately $20,000 to $22,000.

In this example, HECS debt reduces borrowing capacity by approximately $70,000 to $78,000 compared to the same borrower with no HECS debt.

That's a significant difference - often enough to push a property out of reach or require a larger deposit to bridge the gap.

Do I Have to Tell My Lender About My HECS Debt?

Yes - and they'll find out regardless. Your HECS repayment obligation shows on your tax return and payslip. Lenders verify your income through payslips, tax returns, and ATO income statements. There's no way to conceal it, and attempting to do so would constitute fraud.

The good news is that lenders are used to assessing borrowers with HECS debt. It doesn't disqualify you. It just reduces the maximum amount you can borrow.

Does the Size of the HECS Balance Matter?

Not directly - at least not in terms of monthly repayment calculation.

Your repayment is determined by your income, not your outstanding balance. A borrower earning $85,000 with a $15,000 HECS balance and a borrower earning $85,000 with a $80,000 HECS balance will have the same repayment rate applied by the lender.

What the balance does affect is how long the debt persists. A larger balance means you'll be making HECS repayments for longer, which can be a consideration if your income is expected to change significantly in the years ahead.

Strategies to Improve Your Borrowing Position

1. Voluntary repayments before applying

You can make voluntary repayments to reduce or eliminate your HECS balance at any time. If your balance is relatively small, clearing it before your loan application removes the repayment obligation entirely from the lender's assessment.

This isn't always the right move. HECS debt is interest-free (indexed to CPI), so there's an argument for carrying it rather than depleting savings. But if clearing the balance pushes you into a higher borrowing bracket and gets you into a property sooner, the trade-off can be worthwhile.

2. Increase your income

This one sounds obvious, but it's worth stating: your HECS repayment is a fixed percentage of income, while your borrowing capacity scales with income. At higher income levels, the proportional impact of the HECS repayment on borrowing capacity decreases.

3. Apply with a co-borrower

A joint application with a partner or spouse means the lender assesses combined income. If your co-borrower has no HECS debt or a lower repayment rate, the overall impact on your combined borrowing capacity is reduced.

4. Work with a broker who understands serviceability

Not all lenders treat HECS the same way. While most use the standard ATO repayment schedule, there are variations in how lenders model income and expenses in their serviceability calculators. A broker can identify which lender's assessment model works best for your specific income and debt profile.

Should You Pay Off HECS Before Buying?

This is one of the most common questions we get from first home buyers, and the answer is: it depends.

If your HECS balance is under $20,000 and clearing it would unlock an additional $50,000 to $80,000 in borrowing capacity - and you have savings to spare after the deposit - it may be worth paying it down first.

If your balance is large ($50,000+) and your savings are better used toward a deposit and buying costs, carrying the HECS debt and working within its constraints is usually the smarter approach.

The right answer is specific to your numbers. That's exactly the kind of analysis we work through with clients before they apply - so they go into the process with a clear understanding of their position.

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If you're a first home buyer with a HECS debt and you're not sure how it affects your borrowing capacity, book a free consultation with us. We'll run the numbers across multiple lenders and give you a clear picture of where you stand.