HECS debt and borrowing power: can you still buy your first home?
Yes, a HECS debt affects borrowing power, but far less than it did two years ago. The link between HECS debt and borrowing power runs through your compulsory repayment, and that repayment fell for most people in 2025. Here is how lenders count it, which lenders now leave it out, and what it means for your first home.
Short answer: yes, but the story has changed and most of what you will read online is out of date. HECS debt and borrowing power are connected through one number: your compulsory repayment. Lenders treat that repayment as an expense that comes off your income before they work out what you can borrow. In 2025 that repayment fell for almost everyone. The threshold jumped, the calculation became marginal, every balance was cut by 20 per cent, and the regulator told lenders they could leave HECS out altogether when it is nearly paid off. If you have been told your degree is the reason you cannot buy, it is time to run the numbers again.
Are HECS debt and borrowing power really linked?
Short answer: yes, through the repayment, not the balance. A lender does not care much whether you owe $15,000 or $45,000. It cares that a slice of your gross income goes to the ATO each year before you see it. That slice is treated as a commitment. It reduces what you can borrow.
It helps to be precise about what HECS is to a lender, because it is unlike any other debt on your file. It does not appear on your credit report. It charges no interest, only annual indexation. It has no fixed term and no minimum monthly payment. What it does have is a compulsory repayment that your employer withholds through PAYG once your income passes a threshold. That is the only part a lender sees, and it is the only part that matters.
So the honest framing is this. HECS debt and borrowing power are linked. But the link is smaller than a car loan of the same size, because the repayment is income-contingent and it stops the moment the balance is cleared. It is not a black mark. It is a line item.
What changed for HECS debt and borrowing power in 2025?
Short answer: four things, all now in force. The repayment threshold rose from $54,435 to $67,000, and to $69,528 for 2026-27. Repayments became marginal: 15 cents per dollar over the threshold rather than a flat percentage of your whole income. Every balance was cut by 20 per cent on 1 June 2025. And from 30 September 2025 lenders may leave HECS out of the assessment when it will be repaid within about a year.
The repayment itself got smaller
On the ATO’s current tables, for 2026-27 you pay nothing on repayment income up to $69,528. Above that you pay 15 cents for each dollar to $129,717. Then $9,028 plus 17 cents for each dollar to $186,050. Then a flat 10 per cent of total repayment income. Compare that to 2024-25, when someone on $85,000 paid 4.5 per cent of the whole $85,000. That is $3,825. Under the marginal system the same person pays 15 per cent of the $15,472 above the threshold: $2,321. Their HECS “expense” on a home loan application fell by about $1,500 a year, or $125 a month. They did nothing to earn it.
The 20 per cent cut sits on top. The Universities Accord legislation applied it automatically to every balance that existed on 1 June 2025, before that year’s indexation. A $34,000 balance became $27,200. That does not change your repayment this year, because the repayment is set by income. It shortens how long the repayment lasts. And the length matters, because of the next change.
The regulator told lenders to be flexible
In June 2025 APRA updated its mortgage lending guidance. Two things happened. HELP debt was removed from the debt-to-income ratio banks report to the regulator. And APRA said it would not be unreasonable for a lender to remove HELP repayments from a serviceability assessment where the debt is expected to be repaid within 12 months. The logic: that borrower will be largely unaffected by HECS over the life of the mortgage. Both took effect on 30 September 2025. The APRA letter is worth reading if you like primary sources. The short version: banks were given permission to look at the individual, not just the rule.
Lenders have taken it up unevenly. That unevenness is the opportunity for HECS debt and borrowing power. Some major banks now exclude HECS from the assessment when it will be cleared within 12 months. At least one disregards balances under a set dollar figure altogether. Others still deduct the full repayment. Same borrower, same HECS, materially different borrowing capacity depending on the door you walk through.
A HECS debt is not a reason you cannot buy. It is a number a good broker knows how to place.
How much does a HECS debt reduce borrowing power?
Short answer: it depends on income, not balance. On $85,000 the 2026-27 repayment is about $2,300 a year. Through a lender’s serviceability calculator at the current assessment rate, that costs roughly $30,000 to $45,000 of borrowing capacity. On $120,000 the repayment is about $7,600 and the capacity cost is larger. If the debt will clear within a year at the right lender, the cost can be zero.
What HECS costs on a home loan application, 2026-27
| Repayment income | Compulsory HECS repayment (2026-27) | Same income, 2024-25 rules | Indicative borrowing capacity cost |
|---|---|---|---|
| $70,000 | $71 a year | $1,750 a year at 2.5 per cent | Negligible. |
| $85,000 | $2,321 a year | $3,825 a year at 4.5 per cent | Roughly $30,000 to $45,000 of loan. |
| $100,000 | $4,571 a year | $5,500 a year at 5.5 per cent | Roughly $60,000 to $85,000 of loan. |
| $120,000 | $7,571 a year | $9,000 a year at 7.5 per cent | Roughly $100,000 to $140,000 of loan. |
Reading the table
Two things jump out of that table. First, the marginal system helps everyone under about $130,000, and it helps lower earners most. A first home buyer on $70,000 now has almost no HECS drag at all. Second, the capacity cost is real at higher incomes, which is exactly where the 12-month exclusion earns its keep. A borrower on $120,000 with $9,000 left on their HECS is a year from clear. At a lender applying the APRA exception, that $7,571 comes off the expense side entirely. Six figures of borrowing capacity comes back.
One trap to name: repayment income is not taxable income. The ATO adds back reportable fringe benefits, salary-sacrificed super and net investment losses. A novated lease or a big salary sacrifice does not lower your HECS repayment, and a lender will use the real number.
Should you pay off a HECS debt before applying for a home loan?
Short answer: usually not, unless the balance is small enough to clear without touching your deposit. Deposit dollars are worth more than HECS dollars. They buy a lower loan-to-value ratio, they unlock the 5 per cent deposit scheme, and they avoid lenders mortgage insurance. HECS charges no interest and can be left to run.
This is the question we get most, and the instinct behind it is understandable. But run the two uses of the same $10,000 side by side. Paid into HECS, it shortens a no-interest loan. At most lenders it changes nothing about your application unless it takes you inside the 12-month window. Kept as deposit, it moves your loan-to-value ratio. It can be the difference between qualifying for the 5 per cent deposit scheme and not. It can save a five-figure lenders mortgage insurance premium. In most files the deposit wins.
The small-remainder exception
The exception is the small remainder. If a few thousand dollars would take your HECS to zero, clearing it removes the repayment from the assessment at every lender, not just the flexible ones. That is the one case where HECS debt and borrowing power can be fixed with a single payment. That is a conversation to have with a broker with the real numbers in front of you, not a rule.
From the broker’s desk: the file that used to break our hearts was the nurse or the teacher on a good WA salary with $40,000 of HECS. A bank calculator would tell them they were $60,000 short. In 2026 that same person has a lower repayment, a smaller balance, and lenders who will look at when it ends. The degree that built the income is no longer the thing holding the house back.
How do lenders weigh HECS debt and borrowing power for a first home buyer?
Short answer: they take your gross income, deduct the compulsory HECS repayment as a commitment, apply their living-expense benchmark and the 3 per cent serviceability buffer, and see what is left. The HECS step is the one that varies by lender. It is the one a broker can shop.
Everything else about a first home buyer file is unchanged by HECS. Your deposit, your savings history, your credit conduct and your employment are assessed the same way as anyone else’s. If your deposit is thin but your rent record is strong, some lenders treat rental history as genuine savings. If you are building, the support stacked behind a house and land package loan in WA this year is the best it has been. HECS sits alongside all of that as one line in the expense column.
What a broker does with that line is the whole game. We know which lenders apply the 12-month exclusion. We know which disregard small balances, which deduct the full repayment, and which non-bank lenders sit outside the bank rulebook entirely. We also know how to evidence it: your latest notice of assessment showing the balance, your ATO study loan statement, and a payslip showing the withholding. Bring those and the HECS question is answered in the first meeting.
What should a first home buyer with a HECS debt do next?
Short answer: check your balance on myGov, because it is 20 per cent smaller than you think. Work out your 2026-27 repayment at 15 cents per dollar over $69,528. Divide the balance by the repayment to see how many years are left. Then talk to a broker before you talk to a bank calculator. The calculator does not know which lender will leave HECS out.
- Get the real balance. myGov, then ATO, then study and training loan accounts. The 20 per cent reduction was applied in 2025; make sure you are looking at the post-cut figure.
- Work out your repayment. Repayment income minus $69,528, times 15 per cent, for anyone earning under $129,717. That is your annual HECS “expense” on the application.
- Count the years. Balance divided by repayment. Under about one year, and you are inside the window some lenders use to ignore it. Under two, and it is worth asking whether a small voluntary payment gets you there.
- Gather the evidence. Latest notice of assessment, ATO loan statement, recent payslips showing the STSL withholding.
- Run both numbers. Borrowing capacity with HECS deducted and without. The gap tells you what lender choice is worth on your file. It is often larger than the deposit you are worried about.
Picking the broker
Choosing the broker matters more than usual on HECS debt and borrowing power, because the policy differences between lenders are large and not always published. Our list of questions to ask a mortgage broker in WA is a good start. Add one: ask which lenders on their panel apply the APRA HECS exception, and how many first home buyers they have placed under it this year. If the answer is a blank look, keep looking. If the answer is a list, you have found the person who will get HECS debt and borrowing power working in your favour instead of against you.
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Start with a chatThis guide is general information for the Australian market, not advice about your situation. Lender credit policy changes, and what applies to you depends on your circumstances. Pilbara Finance is a credit representative (478535) of Mortgage Specialists Pty Ltd, Australian Credit Licence 387025.