Last updated: July 2026 · Reviewed by John Pierre Saliba, Director and Mortgage Broker, MFAA Accredited
How HECS-HELP Debt Affects Your Home Loan
HECS-HELP debt reduces your home loan borrowing capacity, sometimes significantly. While it doesn't appear on your credit file, lenders factor compulsory HECS repayments as a recurring commitment that reduces your assessable income, and therefore how much you can borrow.
HECS is one of the most underestimated impacts on borrowing capacity I see. A graduate on $90,000 with $45,000 HECS has compulsory repayments of ~$4,500/year. Lenders treat this as a deduction from assessable income, reducing borrowing capacity by approximately $40,000–$60,000 versus the same borrower without HECS. There are strategies to manage it, but you need to know it exists as a constraint first.
HECS Repayment Rates, 2026
- Under $54,435: No compulsory repayment
- $54,435–$62,738: 1% of income
- $62,739–$66,529: 2%
- $70,000–$80,000: 3.5%
- $90,000–$100,000: 5%
- $120,000–$135,000: 7%
- Over $160,000: 10%
Impact on Borrowing Capacity
- Salary $85,000 | HECS $38,000 | Repayment rate 4.5% = $3,825/year ($319/month)
- Estimated borrowing reduction: ~$35,000–$45,000
- Salary $120,000 | HECS $55,000 | Repayment rate 7% = $8,400/year ($700/month)
- Estimated borrowing reduction: ~$75,000–$90,000
Should You Pay Off HECS Before Applying?
Arguments for paying off: Eliminates the monthly commitment from serviceability; immediately increases borrowing capacity $35K–$90K+; HECS is indexed to CPI (grew 7.1% in 2023).
Arguments against: HECS has no interest, just CPI indexation (low in normal years); the funds used to clear HECS could alternatively go toward a deposit, potentially avoiding LMI or accessing a better property; opportunity cost of using $40,000+ to clear HECS vs using it as part of a 20% deposit.
The right decision depends on: HECS balance (smaller = more likely worthwhile to clear), income, deposit position, and the property price you're targeting. We model both scenarios as part of the pre-application assessment.
Strategies to Minimise HECS Impact
- Clear it: If balance under $20,000 and you have spare savings, clearing it is often the cleanest path
- Lender selection: Some lenders assess HECS more generously than others in their serviceability models. We identify the most favourable.
- Joint application: If your partner has no or minimal HECS, their clean income partially offsets yours
- Income growth: At higher income tiers the HECS percentage is higher, but absolute capacity is also higher, the proportional impact diminishes
HECS and Joint Applications
In joint applications, each applicant's HECS is assessed separately. If both partners have HECS, the combined impact on borrowing capacity can be material. We model the full joint picture, sometimes a sole application from the partner with less HECS delivers better capacity, depending on the income split.
