More than three million Australians carry a HECS-HELP or other study loan, and many are also trying to buy their first home, so the question comes up constantly: does my HECS debt reduce my borrowing power?
The short answer is yes, it can — but not in the way most people expect. Your HECS debt doesn’t work like a car loan or credit card. Lenders assess it through your compulsory repayments, not your balance, and the 2025–26 marginal repayment system has changed that maths for most borrowers. Here’s exactly how lenders treat HECS debt, what it costs you in borrowing capacity, and how to minimise its impact before you apply.
How lenders actually treat HECS debt
HECS-HELP debt is unusual. It doesn’t appear on your credit file, charges no conventional interest, and has no fixed monthly repayments. Instead, compulsory repayments are collected through the tax system once your repayment income passes the minimum threshold — $67,000 in 2025–26.
When you apply for a home loan, the lender’s serviceability assessment asks one practical question: after tax, living expenses and existing commitments, how much income is left to cover the mortgage? Here’s where HECS enters the picture:
- Your compulsory HECS repayment is deducted from your usable income. Lenders treat it as an ongoing commitment, similar to tax or superannuation, because it directly reduces your take-home pay.
- The full balance doesn’t usually count as a lump-sum liability the way a $50,000 car loan would. What matters is the cash-flow hit each pay cycle.
- Lenders stress-test with a serviceability buffer — typically around 2–3 percentage points above the actual loan rate — which magnifies the effect of every ongoing expense, including your HECS repayment.
Because HECS isn’t credit-listed, you must still declare it on your application. Lenders will ask about all debts and commitments, and the ATO’s study-loan record and your notice of assessment will show both the balance and the withholding.
2025–26 HECS repayments: what they cost you each month
From 2025–26, compulsory HELP repayments use a marginal system: you only pay a rate on income above each threshold, like income tax brackets. The minimum repayment income is $67,000 — the monthly figure below is what a lender effectively treats as a standing expense.
| Annual repayment income | 2025–26 repayment calculation | Annual repayment | Monthly equivalent |
|---|---|---|---|
| $70,000 | 15% × $3,000 over $67,000 | $450 | ~$38 |
| $80,000 | 15% × $13,000 over $67,000 | $1,950 | ~$163 |
| $90,000 | 15% × $23,000 over $67,000 | $3,450 | ~$288 |
| $100,000 | 15% × $33,000 over $67,000 | $4,950 | ~$413 |
| $120,000 | 15% × $53,000 over $67,000 | $7,950 | ~$663 |
| $150,000 | $8,700 + 17% × $25,000 over $125,000 | $12,950 | ~$1,079 |
| $200,000 | 10% of total repayment income | $20,000 | ~$1,667 |
Two important notes. First, your employer’s PAYG withholding estimates your repayment from gross salary each pay cycle, but the final figure is calculated by the ATO on your repayment income — which isn’t identical to taxable income. It also includes reportable fringe benefits, reportable super contributions, net investment losses and exempt foreign employment income. Second, under the old system these amounts were materially higher, because the rate applied to your entire income once you crossed the threshold.
Want to check your own numbers? Run your salary through the HECS repayment calculator for your compulsory repayment under the 2025–26 bands, and pair it with the income tax calculator for the full take-home picture.
How your balance and income interact in a lender’s eyes
Although repayments are driven by income, your balance still matters — mainly for whether a lender will give you a concession, and for how long the drag will last. The table below estimates how long compulsory repayments alone would take to clear common balances. These are simplified estimates ignoring future pay rises and the 1 June indexation (2.8% in 2026, applied to debts more than 11 months old) — treat them as a rough gauge, not a forecast.
| Income | Annual HECS repayment | $30k balance: years to clear | $50k balance: years to clear | $70k balance: years to clear | Lender concession likely? |
|---|---|---|---|---|---|
| $80,000 | $1,950 | ~15 years | ~26 years | ~36 years | Unlikely |
| $100,000 | $4,950 | ~6 years | ~10 years | ~14 years | Unlikely |
| $120,000 | $7,950 | ~4 years | ~6 years | ~9 years | Unlikely at these balances |
The key takeaway: for most borrowers, the compulsory repayment will be a fixture of their cash flow for many years. That’s exactly why lenders model it as a standing expense rather than a temporary one. The concessions only kick in at the margins — which is where the next section matters.
When lenders ignore HECS debt entirely
Here’s what most first home buyers never hear: some lenders will disregard your HECS repayments in specific situations. Policies vary by lender, but two verified examples show the pattern:
- The APRA 12-month exception. APRA guidance lets banks exclude HELP repayments from serviceability “by exception” where the debt is expected to be repaid in the near term — giving repayment within 12 months as an example. CommBank has publicly adopted this: it will disregard an applicant’s HECS debt if it’s expected to be paid off within 12 months.
- Small-balance disregards. NAB has announced it will disregard HECS debts of less than $20,000 in its serviceability assessment — a single policy difference that can meaningfully change your borrowing capacity with that lender.
The lender you choose matters as much as the debt itself. Two identical applicants can receive different borrowing capacities purely because of how their lender treats HECS. A mortgage broker is worth their fee here: they know which lenders apply the 12-month exclusion, which disregard small balances, and which are strictest. Bring your latest ATO notice of assessment, your study-loan statement, and a payslip showing the withholding.
One more useful fact: the ATO applied a one-off 20% reduction to study-loan balances as they stood on 1 June 2025 (before indexation), automatically. It brought many balances closer to the concession thresholds above — check your current balance in ATO online services via myGov.
Should you pay off HECS before applying for a home loan?
This is the classic deposit-versus-debt dilemma. HECS is one of the cheapest forms of debt in Australia — no real interest, just annual indexation — so diverting deposit savings into a voluntary repayment is often poor economics. But in specific situations it can unlock real borrowing power:
- Consider paying it down when: your balance is under $20,000 (NAB’s disregard threshold) or will be fully cleared within 12 months (the APRA/CommBank exception); you have surplus savings beyond your deposit and emergency buffer; or you’re just above the $67,000 threshold and a pay rise has pushed you into meaningful repayments.
- Consider leaving it when: the balance is large, your compulsory repayment is small relative to income, you need every dollar of deposit, or the repayment would drain your emergency fund. A bigger deposit usually improves your application more than a smaller HECS balance.
- Timing matters. Indexation is applied on 1 June each year, so a voluntary repayment cleared before 1 June reduces the balance indexation is calculated on. And if you’re clearing the entire balance, do it before you lodge your tax return — otherwise a compulsory repayment may still be raised on your assessment.
- Voluntary repayments don’t reduce that year’s compulsory repayment. They’re a credit to your balance, not a substitute for what the ATO calculates you owe, and they’re neither refundable nor tax-deductible.
As a rough decision rule: compare the indexation rate (2.8% for 2026) with the mortgage interest rate you’d pay on an equivalent amount of borrowing — and remember money repaid to the ATO can’t be drawn back out for settlement costs.
Six ways to boost your borrowing power while carrying HECS debt
Even without clearing the debt, there are legitimate ways to improve how your application lands:
- Shop lenders, not just rates. Lender policy is the biggest variable in HECS treatment. A broker can tell you which lenders apply the 12-month exception or the small-balance disregard, and which apply the strictest treatment.
- Cut higher-cost debts first. Credit cards, car loans and personal loans hit serviceability harder dollar-for-dollar than HECS, because lenders assess them at full contracted repayments plus buffers. Clearing a car loan usually boosts capacity more than paying the same amount off HECS.
- Reduce credit card limits. Lenders assess credit cards at the limit, not the balance — a $10,000 limit you barely use is still treated as a commitment. Dropping limits before applying is one of the fastest capacity wins.
- Time your application after a pay rise — carefully. Higher income increases your compulsory HECS repayment, but it increases gross income by more. Model the net effect first with the $100,000 salary breakdown or the income tax calculator.
- Keep your deposit intact. A larger deposit means a smaller loan, a better loan-to-value ratio, and potentially no lenders mortgage insurance. Raiding it to pay cheap HECS debt usually moves the wrong lever.
- Fix your paperwork early. Have your ATO notice of assessment, study-loan balance statement and recent payslips ready. Clean documentation lets the lender (or broker) apply the most favourable HECS treatment without conservative assumptions.
Frequently asked questions
Does HECS debt show up on my credit report?
No — HECS-HELP debt isn’t reported to credit bureaus and doesn’t affect your credit score. But you must declare it on your application, and lenders factor your compulsory repayments into serviceability, so it still influences how much you can borrow.
How much does HECS actually reduce my borrowing power?
It varies by lender, income and balance. Lenders deduct your compulsory annual repayment from your usable income and then apply their serviceability buffer (typically around 3 percentage points above the actual rate). As a rough sense, a $5,000 annual HECS repayment — about what a $100,000 earner pays in 2025–26 — comes straight off your serviceable income, and the capacity impact is larger under stress-testing. The exact figure depends on the lender’s calculator, which is why broker comparisons matter.
I’m below the $67,000 threshold — does HECS still affect my application?
Very little. With no compulsory repayment, there’s no cash-flow deduction in the serviceability assessment, so the practical impact is minimal. Note your balance still grows through 1 June indexation even below the threshold.
Will paying off my HECS debt increase my deposit’s effectiveness?
Not directly — money paid to the ATO can’t be used as a deposit. It only makes sense if clearing the balance (or reaching a lender’s disregard threshold, such as NAB’s $20,000) lifts borrowing capacity more than the deposit contribution would. Run both scenarios first.
Does salary sacrificing affect my HECS repayment?
Reportable superannuation contributions — including salary-sacrificed amounts — are included in repayment income, so salary sacrificing can increase your compulsory HECS repayment. Your employer’s compulsory SG contributions (12% of ordinary time earnings from 1 July 2025) don’t count. Check your total repayment income first.
Can a lender see my exact HECS balance?
Lenders will ask you to declare it and typically verify it against your ATO notice of assessment and study-loan statement. Your current balance is visible in ATO online services through myGov — worth checking before you apply, especially after the automatic 20% reduction applied to 1 June 2025 balances.
The bottom line
HECS debt is neither the home-loan dealbreaker some fear nor invisible to lenders. In 2025–26 the marginal repayment system means compulsory repayments are lower than under the old rules — roughly $38 a month at $70,000 and $413 a month at $100,000 — but lenders still deduct them from your serviceable income and stress-test what’s left. The borrowers who navigate it best know their exact repayment and balance, choose a lender whose HECS policy favours their situation (the 12-month exception and sub-$20,000 disregards are real), and protect their deposit rather than diverting it into cheap debt.
Before you talk to a broker or bank, get your numbers straight. Use the HECS repayment calculator for your 2025–26 compulsory repayment and the income tax calculator for your full take-home picture — and go into your application knowing exactly where you stand.