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 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
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
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
However, lenders don’t care about the total HECS debt you owe, just the ongoing repayment amount
2. How Lenders View HECS Debt (Policies & Criteria)
When you apply for a home loan, you must disclose all debts and liabilities, including your HECS-HELP balance
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)
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
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: Recent moves by regulators in Australia are actually making it easier for first-home buyers with HECS. In early 2025, the Treasurer requested that guidance be updated so that banks don’t unfairly penalize borrowers for having student debt
So, if you’ve only got a small HELP balance left that you could clear soon, a lender might choose to ignore that when calculating your borrowing capacity. APRA also clarified that HECS shouldn’t be treated as “debt” for strict DTI ratio limits since HECS payments scale with income and cease below thresholds
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.
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 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:
- Income-based repayments: You only start repaying HECS once your income is above a certain threshold. The thresholds and rates are set by the government and adjusted most years. For example, in 2024–25, anyone earning under $54,435 pays nothing, while someone earning $60,000 pays 1% of their income, and higher brackets go up gradually to a maximum of 10% for the highest earners
. These percentages are automatically withheld from your paycheck by your employer. This system ensures repayments stay affordable and proportional to earnings – if your income drops (or you lose your job), your HECS repayment drops to zero, unlike a fixed loan payment . This income-contingent nature is why some argue that HECS shouldn’t be viewed as harshly as other debts . - Collected via ATO: The ATO’s role is crucial – employers withhold the required HECS amount from your salary, similar to tax. When you apply for a mortgage, the lender will typically see your pay slips or tax returns, which show those HECS withholdings if applicable. Thus, the lender knows, for example, “this applicant earns $80k, but about 4% is going to HECS.” In effect, HECS is like an additional tax in the eyes of serviceability calculators
. The upside is you don’t have to manually budget for it; it’s taken out before money hits your account. However, the downside is your net income is reduced, which the bank must account for . - No interest (but indexation): One favourable policy aspect is that HECS debts do not charge interest like a normal loan. The balance does increase with inflation, though, through indexation. Each year, on June 1, the government indexes outstanding HECS balances by the CPI inflation rate to maintain their real value
. In periods of low inflation, this indexation was minor (for instance, 1-2% per year for much of the 2010s), but recently it spiked – e.g. 7.1% in 2023, the highest in decades . High indexation can cause your HECS balance to grow, which has prompted debate and government reviews. A 2024 Universities Accord recommended capping HECS indexation to wage growth or similar to avoid such large jumps . As of now, no cap exists, but it’s a space to watch. Importantly, indexation doesn’t directly change how lenders assess your HECS for a home loan – they care about your compulsory repayment rate, not the balance itself. Still, higher indexation might motivate you to pay down HECS faster, which could indirectly factor into your home-buying plans. - Policy changes to help home buyers: While there aren’t specific government programs that wipe out HECS for first-home buyers or anything of that sort, the federal government has shown concern that student debts might hinder young people from buying homes. Apart from the regulator guidance changes, the government offers various first-home buyer schemes to make purchasing easier despite any debts. The thinking behind recent moves is that people with HECS should be treated fairly when seeking mortgages
. This sympathetic stance is good news for first-home buyers: it may gradually become standard that banks ignore very small HECS debts or ones soon to be paid off rather than rigidly counting every dollar.
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.
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 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.
Case Study: First-Home Buyer with Significant HECS
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.
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 known as the First Home Loan Deposit Scheme) is designed to help first-home buyers purchase with a low deposit. Under the First Home Guarantee, eligible buyers can buy with just a 5% deposit and no LMI because the government acts as a guarantor for up to 15% of the loan. This scheme doesn’t give you more borrowing power in the sense of income, but it removes the need for a 20% deposit. If you have HECS Debt and a lender will only lend you $400k instead of $450k, having the scheme backing means you only need a $20k deposit instead of $80k – which, for many, is the difference between buying now or years later. The scheme has price caps, income limits, and a limited number of places each year
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:
No – having HECS is very normal, and lenders will not reject you just because of it
Typically, banks look at your pay slip or tax return to see if you have a HECS repayment. If you do, they'll include that as an ongoing expense in your loan affordability calculation. For example, if you earn $5,000/month and $200 of that goes to HECS, they might treat it as if you really earn $4,800 available for other expenses. This flows into how they compute your maximum monthly mortgage payment and, thus, loan size. They don't count the entire HECS balance as a liability like a car loan balance – it's all about the monthly/yearly repayment. The bank ensures that after your HECS is taken out, you still have enough income to comfortably pay the new mortgage.
Yes, you should disclose any HECS-HELP debt when asked about debts in your application, even if you currently earn below the threshold. The reason is that it's still a contingent liability – when your income rises above the cutoff, you'll need to start repaying. If you're not paying yet, the lender might not dock your borrowing capacity for it now, but they'll be aware that if your income increases, a HECS payment could kick in. Always be honest in your application. Hiding a HECS debt, which the lender may catch in your tax records anyway, could lead to complications. Usually, if you're not required to repay at your current income, it has minimal impact on your loan assessment aside from noting its existence.
No, your HECS-HELP debt does not appear on credit files and doesn't directly affect your credit score
Potentially, yes. Voluntary repayments reduce your HECS balance; if you fully pay it off, then you'll have no future HECS deductions, instantly improving your borrowing capacity. If you only pay off part of it, what matters is whether that changes your required repayment rate. For example, paying down your balance won't change that you owe 5% of your income this year unless it brings your balance to $0 or the balance becomes so low it would be cleared within the year, in which case your employer would stop deductions after it's cleared. So, to boost borrowing power, you'd likely need to eliminate the HECS debt entirely. Some lenders might consider the scenario "balance is low, will be paid off soon" and be lenient, especially with the new guidance
Not necessarily. If the only thing holding you back is HECS and you'll be done with it in a year, you have a few options: (1) Go ahead and apply now. Housing prices might rise in the meantime, so waiting could cost more than the benefit of slightly higher borrowing power later. (2) If you're just shy of what you need, consider making a one-off payoff to clear the HECS now rather than waiting a year. That way you remove the HECS and can buy a house now. (3) If neither of those is viable and you truly can't get the loan amount you need with the HECS in place, then waiting until it's paid could be sensible.
There aren't programs specifically for "people with HECS" beyond what's available to all first-home buyers. Fortunately, you have access to all the same grants and schemes as anyone else. That includes the First Home Owner Grant, First Home Guarantee Scheme, regional buyer schemes, stamp duty exemptions, etc. Your HECS status doesn't exclude you from these. In fact, using these programs can be especially useful if HECS has strained your finances a bit.
If your income falls below the repayment threshold, your compulsory HECS repayments will pause, and you won't be required to make payments during that period. This can relieve some pressure on your budget since it's one less deduction from your pay. However, this doesn't change your mortgage obligations – you still must pay your home loan. Lenders assess your ability to pay the mortgage based on your situation at the time of application and some buffer for rate rises. They don't reassess because your HECS stopped or started. So, if you anticipate a drop in income, let your lender know before you take the loan because honesty is important.
Once you have both a HECS debt and a home loan to pay, it's all about budget management. Treat your HECS repayment as part of your tax — it's consistent as a per cent of income. When setting your budget, a good approach is to live on your after-HECS take-home pay. Don't count that 5% or so that disappears; pretend it doesn't exist. This way, your mortgage, utilities, groceries, and other expenses are aligned with your true net income. If your HECS is relatively small now, consider making a final voluntary payment once you're a homeowner if you get a work bonus or windfall. Eliminating the HECS during your home loan tenure means one less expense and potentially more money to throw at the mortgage or other goals.
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.
Start again
