HECS-HELP Debt and Your Borrowing Power

Key takeaways

• The compulsory repayment reduces assessed surplus income, so it lowers capacity.
• On a $100,000 income the repayment can reduce borrowing power by roughly $80,000-$100,000.
• Some lenders ignore the debt when it is nearly repaid - ask specifically.
• Paying it off is not automatically the best use of a deposit.

How it hits capacity

Compulsory repayments are a percentage of income that rises with income. On $100,000, the repayment is several thousand dollars a year - money the lender removes from your surplus before calculating the loan.

As a rough guide, every $100 a month of commitment reduces borrowing capacity by roughly $11,000-$13,000 at current assessment rates. A $500 monthly HECS repayment therefore costs somewhere near $55,000-$65,000 of capacity.

Should you pay it off first?

Compare like for like:

• HECS is indexed, not charged interest, and indexation has historically been below mortgage rates.
• Paying it off removes the commitment and restores borrowing capacity immediately.
• But the money spent is deposit you no longer have, which reduces your purchase price and may push you above 80% LVR into LMI.

For a borrower close to the deposit they need, keeping the cash usually wins. For a borrower with ample deposit but constrained serviceability, clearing a small remaining HECS balance can unlock more than it costs.

Lender policy differences

This is one of the areas where lenders differ most:

• Some count the full compulsory repayment regardless of the balance.
• Some disregard it where fewer than 12 months of repayments remain.
• Some assess it against projected income rather than current.

If HECS is the binding constraint on your application, finding a lender with favourable treatment is worth more than shopping on rate.

Frequently asked questions

Is HECS considered a debt for a home loan?

Yes, in the sense that the compulsory repayment is a commitment reducing your surplus income. It is not treated like a personal loan balance, but the effect on capacity is real.

Does indexation make it urgent to repay?

Indexation preserves the real value of the debt rather than charging interest. Whether to repay early is a cash-flow and capacity question more than an interest-saving one.

Will my employer withholding show as a repayment?

Yes - PAYG withholding for HECS appears on your payslip and is what lenders use. Voluntary repayments do not change the compulsory amount until the balance clears.

Related reading

• Why Home Loan Applications Get Declined: The Top 12 Reasons
• Caravan, Boat and Motorcycle Finance
• Credit Scores in Australia: Equifax, Experian and illion

Sources

• Study and training loan repayment thresholds and rates — Australian Taxation Office
• Prudential Practice Guide APG 223 — APRA