The Direct Answer: Yes, HECS Affects Your Borrowing Capacity
HECS-HELP (Higher Education Contribution Scheme) debt reduces your home loan borrowing capacity — but not because it appears on your credit report or because lenders treat it as a traditional loan. The impact comes from the compulsory repayment obligations attached to your income, which reduce the amount a lender calculates you can afford to repay.
The good news is that the impact is manageable, and lenders have different approaches to how they assess HECS. A broker who understands these differences can significantly improve your borrowing outcome. Here's everything you need to know.
How HECS Repayments Actually Work
Unlike a standard loan, HECS-HELP debt has no interest — only annual indexation (currently CPI-based, applied every 1 June). Repayments are made compulsorily through the tax system once your income exceeds the minimum repayment threshold. The ATO publishes current repayment rates and thresholds.
| Repayment Income | Repayment Rate | Annual Repayment on $80k income |
|---|---|---|
| Below $54,435 | Nil | $0 |
| $54,435 – $62,850 | 1.0% | ~$545 – $629/year |
| $70,000 – $80,000 | 3.5% | ~$2,450 – $2,800/year |
| $90,000 – $100,000 | 5.0% | ~$4,500 – $5,000/year |
| $120,000 – $130,000 | 6.5% | ~$7,800 – $8,450/year |
| $150,000+ | 10% | $15,000+/year |
Repayment income thresholds and rates are indexed annually. Visit the ATO for current figures.
How Much Does HECS Reduce Your Borrowing Capacity?
Your HECS repayment is treated by lenders as a committed expense — like a credit card minimum payment or a personal loan repayment. It reduces your net income available to service a mortgage. Here's how the maths works at different income levels:
📊 Borrowing Capacity Impact: Real Examples
- Income $80,000, HECS debt $40,000: Repayment ~$2,600/year → reduces borrowing by approximately $15,000–$20,000
- Income $100,000, HECS debt $60,000: Repayment ~$5,000/year → reduces borrowing by approximately $30,000–$40,000
- Income $120,000, HECS debt $80,000: Repayment ~$7,800/year → reduces borrowing by approximately $45,000–$55,000
- Income below $54,435: No current repayment → some lenders still factor in future obligations; others do not
The reduction in borrowing capacity is calculated by dividing the annual HECS repayment by 12 (to get a monthly figure) and then applying the same serviceability assessment as for any other committed debt. At a stressed interest rate (current rate + 3%), every $200/month in committed expenses typically reduces your borrowing capacity by approximately $30,000–$40,000.
Why Lender Policy Matters — and How a Broker Helps
Not all lenders treat HECS identically. This variation creates a genuine opportunity for borrowers with HECS to improve their outcome by working with a broker who knows the policy differences.
Assessment Method Variations
- Strict assessment: Some lenders include the full compulsory repayment obligation calculated on your gross income, regardless of whether you're actually making repayments yet
- Actual repayment method: Some lenders only include the HECS repayment if you are currently making compulsory repayments (i.e., your income is above the threshold)
- HECS-as-liability approach: A minority of lenders also consider the outstanding HECS balance itself as a liability alongside the repayment commitment
The difference between the most strict and most lenient lender approach can be $30,000–$50,000 in borrowing capacity on the same application. That's a significant variance — and it's exactly why using an experienced mortgage broker rather than going directly to a single bank is particularly valuable for HECS holders.
Strategies for HECS Holders Buying Property
1. Use Your Payslip and Tax Return to Demonstrate Capacity
Your payslip will show the HECS repayment deduction. This is actually useful — it demonstrates to a lender that you have been consistently managing this expense alongside your other living costs. Provide 2–3 months of payslips and your most recent Notice of Assessment from the ATO.
2. Consider a Joint Application
If you're purchasing with a partner who does not have HECS, the combined application will be less impacted. The non-HECS applicant's income contribution is not reduced by any HECS obligation, improving the overall serviceability calculation. Read our guide on joint home loans for more on how combined applications work.
3. Don't Voluntarily Repay HECS Just for the Loan
A common misconception is that paying off HECS debt before applying improves your home loan position significantly. While it does remove the repayment obligation, the cash used to pay HECS could instead have been part of your deposit — which reduces your LVR and potentially avoids LMI. The numbers often favour keeping the HECS and using your savings toward your deposit. Your broker can model the specific trade-off for your situation.
4. Choose the Right Lender
As described above, lender policy differences on HECS are significant. This is one of the clearest cases where a broker's knowledge of lender-specific policies directly translates to a better borrowing outcome. Book a free strategy call to identify the most favourable lenders for your income and HECS balance.
HECS and the First Home Guarantee
HECS debt does not disqualify you from the First Home Guarantee (FHG) — the scheme that allows eligible first home buyers to purchase with a 5% deposit and no LMI. Income limits apply ($125,000 for singles, $200,000 for couples in 2025–26), and property price caps apply — up to $1.5 million in NSW for 2025–26. HECS repayments affect your serviceability calculation as described above, but HECS alone is not an FHG disqualifier.
Frequently Asked Questions
No. Your HECS-HELP balance is a debt owed to the government and does not appear on your credit report. However, lenders will ask you to declare it on your home loan application, and they will verify it through your payslips (which show the HECS repayment deduction) and tax return.
Log into your myGov account and navigate to the Australian Taxation Office (ATO) section. Your HECS-HELP balance is shown under 'Study and training loan balance'. Your balance is indexed (adjusted for inflation) each year on 1 June.
Paying off HECS to improve your borrowing capacity can make sense if you have significant savings and your debt is relatively small. However, HECS repayments are only required when your income exceeds the repayment threshold (approximately $54,000 in 2025–26), there is no interest on HECS (only indexation), and those funds could instead form part of your deposit. Your broker can model both scenarios.
No. Lender policies on HECS vary significantly. Some lenders include the full HECS repayment obligation in their assessment even if you are not currently repaying it (because your income is below the threshold). Others only include it if you are actively making repayments. A broker who understands lender policy differences can identify which lenders are most favourable for your income level and HECS balance.
Yes. A large HECS balance alone will not prevent you from getting a home loan. Many borrowers with $50,000–$100,000 HECS debts obtain competitive home loans. The key is your income, overall financial position and which lenders your broker approaches. Medical graduates with six-figure HECS debts, for example, routinely get approved for significant loans.
🎓 HECS Holder? Get the Right Lender Matched to You
Our broker partners understand exactly which lenders are most favourable for borrowers with HECS debt at different income levels. Use our Smart Home Loan Check for an instant borrowing estimate, or book a free call for a personalised assessment.