Does HECS-HELP debt affect your home loan borrowing power?

You might wonder how your student loans could impact your borrowing power — and your potential to get your home loan application approved.
Ava Crawford
Written by
Ava Crawford
Imogen Baxter
Reviewed by
Imogen Baxter
Last updated
February 12, 2024
0 minute read
Table of contents
Group of Australian friends with HECS debt discussing homeownership

In 2021-2022, ATO data indicated that more than 3 million Australians owe more than $68.7 billion in combined HECS-HELP debt. If you are one of these millions of Aussies, you might wonder how your student loans could impact your borrowing power — and your potential to get your home loan application approved.

Rest assured: While lenders consider your HECS-HELP debt in the home loan application process, they do not accept or reject you based on student loans. These are actually quite a poor indicator of your financial situation and money management, which are of far greater interest to lenders.

Let’s explore:

The impact of HECS-HELP debt

The most important thing to a lender is risk, and when you go through the home loan application process, it is essentially them partaking in a risk assessment exercise.

What they want to know is that they will make their money back and that you will be able to make home loan repayments. They do this by testing your serviceability. There are a lot of things a lender will look at to make that judgement, and of course, HECS-HELP debt is one of those things. It’s just not one of the most important things.

HECS-HELP debt is something that a large percentage of Australians hold, and repayments are automated. Making HECS-HELP repayments does not indicate creditworthiness, necessarily, and it is hard to make any judgements off of.

A lender is much more likely to take notice of other existing debt and how that impacts your debt-to-income ratio (DTI). This can include credit cards, car loans, personal loans, and other liabilities. These things will be assessed in your credit history, allowing a lender to view your repayment history and your potential to stay on top of home loan repayments.

For a snapshot of this, you can check your credit score. This will give a numerical value to your creditworthiness, with a lower score indicating a worse record and a higher score meaning a better one.

Can HECS debt affect your credit score?

In general, it shouldn’t. It will be factored into your DTI ratio, which isn’t ideal, but it’s far less obtrusive to your borrowing power than credit card debt or defaulted loans. What it might do is cap your borrowing capacity, limiting the loan amount you can take out.

The benefits of better borrowing power

While having HECS-HELP debt might not stand in the way of those homeowner dreams, it’s definitely not increasing your chances.

Along with increased borrowing power comes greater borrowing capacity, which means you may be able to take on a greater loan amount. Since most real estate purchases require large upfront deposits, this will probably be helpful.

Increased borrowing power also means that if you are looking to take on a home loan with a high loan-to-value ratio (LVR), you could be in a better position to request it. This could benefit many first-home buyers, who often take advantage of low-deposit home loans with 90% LVR.

Many home loans also offer interest rates on a risk-based pricing model. A lack of HECS-HELP debt and a strong credit score puts you in the optimal position for a low-interest rate when assessed in a risk-based model — just make sure you also consider the comparison rate rather than the headline fixed or variable rate, as the comparison rate factors in regular fees you’ll pay.

If you do get lumped with a higher rate, remember the option to refinance. Once you’ve paid down some of your home loans and have a level of equity in your property, refinancing can help you get a lower rate that’s more reflective of your current financial situation.

Increasing your borrowing power with HECS-HELP debt

HECS-HELP debt is not the only thing contributing to the assessment of your serviceability, so it may be worth seeing what you can do to boost your borrowing power.

Depending on your personal objectives - for instance, whether you are looking to enter the property market as an owner-occupier or with an investment property - you’ll need to look at the loan amount you aim for.

From here, you can start to calculate what your borrowing capacity will be. We have a borrowing power calculator for this, but you can estimate your borrowing capacity by subtracting your monthly debts (credit cards, car loans, etc). Before major liabilities, this will give you a rough idea of your borrowing power.

As a disclaimer, these calculations will only be rough guidelines. Until you are actually applying for a home loan or consulting with a mortgage broker, there is no certain way to say if your home loan will be approved — only ways to improve your chances.

In the meantime, work on paying down other existing debt as a priority. Things like credit cards and personal loans will accrue interest much faster than your HECS-HELP debt will index. You are also in charge of scheduling those repayments, unlike HECS repayments, which will automatically be deducted from your pay.

Work at getting your credit score into top shape from every other angle so that your HECS-HELP debt is the only liability to your name, and a low-priority one at that.


What are HECS-HELP loans?

HECS-HELP are two common acronyms used to discuss student debt in Australia, often used in tandem or referred to as HECS.

HECS stands for the Higher Education Contribution Scheme, and HELP stands for the Higher Education Loan Program. HECS-HELP debt is similar to a student loan, in that it is borrowed to support your education. It is also subsidised by the Australian government (provided you meet the eligibility criteria).

When do I have to pay back my HECS-HELP debt?

Unlike many personal loans, which have a set term (after which you will default), your HECS-HELP debt does not have an end date.

You will be required to start paying off your HECS-HELP debt when you meet the income threshold stated by the Australian government. As of the 2022-2023 financial year, this repayment threshold is an annual income of $48,361, which is subject to change.

How much are my HECS repayments?

Like taxes, HECS repayments are calculated in tiers based on your income. That means that the higher your annual income is, the higher the repayment rate is for your HECS-HELP debt.

The tiers for the 2022-2023 financial year, according to the ATO, are as follows:

  • Below $48,361: No repayments are required
  • $48,361 – $55,836: 1% repayments
  • $55,837 – $59,186: 2% repayments
  • $59,187 – $62,738: 2.5% repayments
  • $62,739 – $66,502: 3% repayments
  • $66,503 – $70,492: 3.5% repayments
  • $70,493 – $74,722: 4% repayments
  • $74,723 – $79,206: 4.5% repayments
  • $79,207 – $83,958: 5% repayments
  • $83,959 – $88,996: 5.5% repayments
  • $88,997 – $94,336: 6% repayments
  • $94,337 – $99,996: 6.5% repayments
  • $99,997 – $105,996: 7% repayments
  • $105,997 – $112,355: 7.5% repayments
  • $112,356 – $119,097: 8% repayments
  • $119,098 – $126,243: 8.5% repayments
  • $126,244 – $133,818: 9% repayments
  • $133,819 – $141,847: 9.5% repayments
  • $141,848 and above: 10% repayments

This means that if you earn $75,000 per year before tax, 4.5% of your pay will be contributed to HECS-HELP repayments. If you have a HECS-HELP debt of $24,000, your annual compulsory repayments would amount to $3,375 — or $281.25 per month.

Do I pay interest on my HECS-HELP debt?

While a HECS-HELP debt is different to other personal loans in that there is no traditional interest rate attached, each financial year, your balance will be indexed to maintain the value of the loan.

Indexation is only applied to HECS-HELP debts over 11 months old. It is applied at the rate of the cost of living, as measured by the Consumer Price Index. While this has historically meant an indexation rate of around 2%, increases to the Consumer Price Index have seen it grow dramatically in 2022 and 2023.

How is DTI calculated?

DTI, or debt-to-income ratio, is a calculation a lender will use to determine how much your liabilities are worth in relation to your regular income.

This is worked out, in a very simplistic fashion, by taking your existing debt and working it out as a ratio of your income.

For example: Say you have $25,000 in HECS debt and $5,000 remaining in a car loan. If you are earning $80,000 a year, your DTI would be expressed as:

25,000+5,000 = 30,000 (debts)

30,000/80,000 = 37.5%

Generally speaking, the lower the debt-to-income ratio, the better.

If we remove the HECS-HELP debt from the equation, the DTI becomes even more impressive:

5,000 (debts) / 80,000 (income) = 6.25%

If you were to be on the market for a particular product that would add more debt to this ratio, like a home loan, it would make your DTI much higher.

This article is intended to be general in nature and is not personal financial product advice. It does not take into account your objectives, financial situation, or needs. In particular, you should seek independent financial advice and read the relevant product disclosure statement (PDS), or other offer documents before making an investment decision in relation to a financial product (including a decision about whether to acquire or continue to hold).
Prepared by OwnHome Services Pty Ltd ACN 664 492 059. This information does not take your personal objectives, circumstances or needs into account. Always read the disclosure documents for products and services before deciding on a product or service, and consider seeking independent legal, financial, taxation or other advice for your unique circumstances.

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