- HECS-HELP debt may reduce your borrowing capacity because compulsory repayments lower your net disposable income, which lenders factor into their loan serviceability assessments.
- For the 2026-2027 financial year, repayments begin once your income exceeds $69,528, with repayment rates scaling up based on income tiers.
- Depending on your income and loan size, a standard HECS debt can reduce home loan borrowing capacity by tens of thousands of dollars; however, lenders may discount the debt if it is expected to be fully paid off within 12 months.
- Deciding to pay off HECS-HELP early depends on balancing the need for a higher borrowing limit against the risk of reducing your cash deposit, as well as prioritising any higher-interest debts like credit cards first.
Higher education debts such as HECS-HELP debt can impact your borrowing capacity when applying for a home loan.
While lenders may view HECS-HELP debts as lower risk than credit card or other debts – as they have no interest and are automatically deducted from your income – they still reduce your disposable income and therefore the amount you will be able to repay on your loan.
What is a HECS-HELP loan?
The Australian Government’s HECS-HELP loan program helps eligible students pay for their higher education. It helps to make higher education more accessible as students can put off paying for the education until they earn enough money.
For the 2026-2027 financial year, HECS-HELP repayments are outlined below:
|
Income threshold |
Marginal repayment |
|
Below $69,528 |
NIL |
|
Income above $69,528 to $129,717 |
15c for each dollar over $69,528 |
|
$129,718 – $186,050 |
$9,028 plus 17c for each dollar over $129,718 |
|
$186,051 and over |
10% of your total repayment income |
How HECS-HELP debt impacts your borrowing power
HECS–HELP debt can affect your borrowing power as lenders may factor the compulsory repayments into their loan serviceability assessment.
Having a higher-education loan will lower your debt-to-income ratio which is calculated by dividing your total existing debts by your gross income.
For example, a borrower earning $100,000 with a $50,000 HECS-HELP debt may see their borrowing capacity reduced by $55,000 to $65,000 due to compulsory repayment thresholds.
The approximate impact on borrowing power based on taxable income is:
|
Taxable income |
Impact on borrowing power |
|
Below $69,529 |
No impact |
|
$69,529 – $129,717 |
$50,000 to $80,000 |
|
$129,718 – $186,050 |
$80,000 to $100,000 |
However, lenders may discount your higher-education debts if they are close to being paid off for example, in the next 12 months or if they’re under $20,000.
Should I pay off my HECS-HELP debt before applying for a home loan?
Whether or not you should pay off your high-education debt before applying for a home loan is entirely dependent on your individual circumstances.
Here are some things to consider:
- If you’re looking to buy a home priced close to your maximum borrowing capacity, paying off your HECS-HELP debt could help push you over the line.
- Using your savings to pay off HECS-HELP debt could lower your deposit or leave you with less for upfront costs like stamp duty.
- Do you have higher interest debts like a credit card or car loan that should be cleared first?
- The size of your HECS-HELP debt: Is your HECS-HELP loan large and may take a while to pay off? Or is the remainder small and could be paid off relatively quickly? Some lenders won’t consider a HECS-HELP debt that is under $20,000 when calculating your serviceability.
- If your HECS-HELP repayments are relatively low, it doesn’t significantly reduce your borrowing power.
- If your remaining HECS-HELP debt is small, but your income is high and a large repayment is being deducted each year, it may make sense to pay it off early, particularly if you can do so before the indexation is applied to the debt.
Why see a broker?
A Loan Market broker can help work out your debt-to-income ratio and whether or not paying off your HECS-HELP debt can increase your borrowing capacity. A broker will get to know your situation and goals and crunch the numbers to determine the right move for you. Lenders assess borrowing capacity differently, but Loan Market brokers have access to a range of lenders to find one that suits your needs and offers a competitive rate.
Find out more about your options with a free chat with a Loan Market broker.
FAQs
Does HECS-HELP debt attract interest?
No, a HECS-HELP loan doesn’t attract interest, however it is indexed every year to match inflation. This is applied to the debt on 1 June each year based on the lower of the Consumer Price Index (CPI) or the Wage Price Index (WPI).
What is a normal amount of HECS-HELP debt?
The amount of HECS-HELP debt someone can accrue varies greatly depending on what they studied, and for how long. However the most recent ATO data shows the average HECS-HELP loan is $27,739.
What happens if you never pay off your HECS-HELP debt?
If you never earn enough money to pay off your HECS-HELP debt, you will not be forced to pay it. The debt will eventually be cleared when you pass away – it won’t be left for your family or estate to pay off.
