If you have a HECS-HELP debt and you’re trying to buy your first home — or refinance — there’s something most people don’t realise until they sit down with a lender: your student debt is reducing how much you can borrow, often significantly. A $50,000 HECS debt for someone earning $80,000 can cut borrowing power by $60,000 to $80,000. A $100,000 HECS debt on the same income could reduce it by $120,000 to $150,000. And following APRA’s new DTI lending caps introduced on 1 February 2026, the impact has become more consequential than ever. This guide explains exactly how HECS affects your mortgage application, what lenders actually do with it, and how to maximise your borrowing capacity.
How HECS-HELP actually works — a quick refresher
HECS-HELP is the Australian government’s income-contingent student loan program. Unlike a regular loan, you don’t pay interest in the traditional sense — instead, your debt is indexed to CPI each year. Repayments are only required once your income exceeds the minimum repayment threshold, and they’re collected automatically via the tax system as a percentage of your income.
For the 2025–26 financial year, compulsory repayment rates range from 1% of income at the lowest threshold up to 10% for high earners. These rates are deducted before you receive your take-home pay.
Crucially, HECS-HELP does not appear on your credit report and does not directly affect your credit score. However, it affects your borrowing power significantly — because lenders count your mandatory repayment obligation as a regular monthly expense that reduces your serviceable income.
How APRA and lenders treat HECS in 2026
Following guidance from APRA, all regulated lenders must factor HECS-HELP debt into your debt-to-income (DTI) ratio when assessing your home loan application. This means your HECS balance is treated like any other liability — even though you don’t make fixed monthly repayments the way you would on a car loan.
Here’s how it works in practice:
- The lender looks up your annual HECS repayment obligation based on your income
- This is converted to a monthly figure and treated as a fixed monthly expense
- That monthly expense reduces your serviceable surplus income
- Which in turn reduces the maximum loan amount you qualify for
Example: Someone earning $80,000 with $50,000 in HECS debt has a mandatory repayment obligation of approximately $4,000 per year — or $333 per month. Banks treat this as a fixed ongoing cost when calculating serviceability. That $333/month, assessed at APRA’s 3% buffer rate, reduces borrowing capacity by approximately $60,000 to $80,000 depending on the lender’s model.
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The real impact — how much does HECS reduce your borrowing power?
| HECS Balance | Income | Approx. Annual Repayment | Approx. Borrowing Power Reduction |
|---|---|---|---|
| $30,000 | $70,000 | ~$2,100/year | ~$35,000–$50,000 |
| $50,000 | $80,000 | ~$4,000/year | ~$60,000–$80,000 |
| $75,000 | $90,000 | ~$6,300/year | ~$90,000–$120,000 |
| $100,000 | $100,000 | ~$8,500/year | ~$120,000–$150,000 |
These figures are approximations — the exact impact varies significantly by lender. Different lenders use different serviceability models to assess HECS obligations. Some calculate the repayment based on your current income, others based on your potential maximum income. A good mortgage broker will know which lenders are most HECS-friendly for your specific combination of income and debt.
HECS indexation in 2026 — why your debt is growing
HECS debt is indexed to CPI annually on 1 June each year. Following high CPI in 2022–2024, many graduates saw their HECS balance grow by 3–7% per year even while making repayments. For 2026, CPI indexation is tracking around 3.8% — which means a $60,000 HECS debt will grow by approximately $2,280 on 1 June 2026, even if you’ve made voluntary repayments during the year.
This is an important consideration when deciding whether to make voluntary HECS repayments before applying for a home loan.
Should you pay off your HECS before applying for a home loan?
This is one of the most common questions — and the answer is nuanced:
When paying off HECS makes sense:
- Your remaining balance is small (under $10,000) and a lump sum payment would meaningfully remove the repayment obligation entirely
- Removing the balance would push you below a repayment threshold, eliminating the monthly liability
- You’re close to the DTI limit of 6x income and reducing total debt would move you below the threshold
When paying off HECS doesn’t make sense:
- Your HECS balance is large and you’d need to deplete your deposit savings to reduce it significantly
- The same cash could be better used to increase your deposit (which directly improves your LVR and may eliminate LMI)
- You have higher-interest debt (credit cards, personal loans) that reduces serviceability more per dollar
General rule of thumb: pay off high-interest debt first. HECS has no interest — it only has CPI indexation, which in most environments is lower than the cost of credit card or personal loan debt. Your deposit is also often a more powerful lever than HECS reduction.
How to check your HECS balance
Your current HECS-HELP balance is shown in your ATO account via myGov. Log in to myGov → link your ATO account → select “Study and training support loans” → your current balance is displayed. This is the figure you should enter into any borrowing capacity calculator when assessing your real borrowing position.
Strategies to maximise borrowing power with HECS debt
1. Use a mortgage broker who knows HECS-friendly lenders. Different lenders assess HECS differently. Some are significantly more generous in their calculations. A broker with current knowledge of lender policies can identify which bank will give you the highest borrowing capacity for your specific income and HECS balance.
2. Don’t apply to multiple lenders directly. Every direct application creates a “hard enquiry” on your credit file. Multiple enquiries in a short period signal financial stress and can lower your score. Use a broker or aggregator that submits a single enquiry.
3. Increase your income before applying. Since HECS repayment rates are income-contingent, the impact of HECS on serviceability is proportionally smaller at higher incomes. A salary increase before you apply can improve your borrowing power more than a moderate HECS repayment.
4. Apply with a partner or co-borrower. Joint applications combine income for DTI calculations. The HECS obligation is assessed against the higher combined income, which often reduces its proportional impact significantly.
5. Consider making a partial voluntary payment. If paying down $5,000–$10,000 of HECS would push your income below the next repayment threshold, it can eliminate that monthly liability entirely — which can unlock a disproportionate increase in borrowing capacity relative to the amount repaid.
HECS and the First Home Guarantee in 2026
Good news: HECS-HELP debt does not disqualify you from the First Home Guarantee (expanded from October 2025 with no income caps and no place limits). The scheme still applies regardless of your HECS balance. The guarantee covers up to 15% of the purchase price as a government guarantee, allowing you to buy with a 5% deposit without paying Lenders Mortgage Insurance.
If you have HECS debt and are a first home buyer, the combination of the First Home Guarantee (reducing your deposit requirement) and a HECS-friendly lender (maximising your borrowing capacity) is your most powerful strategy for 2026.
Frequently asked questions
Does HECS-HELP debt affect your credit score in Australia?
No — HECS-HELP debt does not appear on your credit report and does not directly affect your credit score, as it is not a traditional loan reported to credit bureaus. However, it does reduce your borrowing power by increasing your assessed monthly expense obligations, which lenders factor into serviceability calculations.
How much does HECS reduce home loan borrowing power in 2026?
A $50,000 HECS debt for someone earning $80,000 reduces borrowing power by approximately $60,000 to $80,000 depending on the lender. A $100,000 HECS debt on the same income can reduce it by $120,000 to $150,000. The exact impact varies significantly by lender, as different banks calculate HECS obligations differently.
Should I pay off my HECS before applying for a home loan?
Only if the remaining balance is small enough that full repayment would eliminate the repayment obligation entirely. In most cases, the same cash is better used to build a larger deposit (improving your LVR) or paying off higher-interest debt like credit cards. Pay off high-interest debt first — HECS is indexed to CPI, not charged interest like a commercial loan.
Do all lenders assess HECS debt the same way?
No. Different lenders use different models to calculate the HECS repayment obligation — some are significantly more HECS-friendly than others. A good mortgage broker will know which lenders give the most favourable assessment for your specific income level and HECS balance, potentially unlocking tens of thousands more in borrowing capacity.
Does HECS debt disqualify me from the First Home Guarantee?
No. HECS-HELP debt does not disqualify you from the First Home Guarantee (expanded October 2025 with no income caps and no place limits). You can still buy with a 5% deposit and avoid Lenders Mortgage Insurance under the scheme regardless of your HECS balance.
How do I check my current HECS-HELP balance?
Log into myGov, access your linked ATO account, and select “Study and training support loans.” Your current HECS-HELP balance is displayed there. This is the figure to use in borrowing capacity calculators when planning a home loan application.
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