The short version
- HECS-HELP debt itself doesn't appear on your credit report and isn't treated like a credit card.
- The compulsory repayment is deducted from your salary once you earn over the threshold ($54,435 in 2025-26), reducing your take-home pay.
- Lenders treat that reduction as a permanent expense, which lowers your borrowing power.
- For most graduates, HECS reduces borrowing power by roughly $50,000 to $90,000 on a typical $90K–$130K salary.
- From mid-2025, APRA confirmed lenders no longer have to assess HECS at the buffered (3% over actual) rate. Several majors have updated their servicing models to be more generous, but the impact is still material.
- Whether to pay HECS off before applying depends on the gap between current rate (low) and your borrowing-power gain (significant), usually not worth it.
How HECS actually works
HECS-HELP is a government loan, not a commercial debt. You only repay it once your income exceeds the compulsory repayment threshold. In the 2025-26 financial year, the threshold is $54,435, and the repayment rate scales from 1% up to 10% as your income rises.
For someone earning $100,000, the compulsory repayment is around 7% of taxable income (the rate as of 2025-26), or roughly $7,000 a year, deducted by your employer through PAYG and remitted to the ATO with your tax return. The debt is indexed to CPI annually (capped at WPI from 2024 reforms), so it grows with inflation but doesn't accrue interest in the commercial sense.
Why lenders care
Lenders run a serviceability test. They calculate your gross monthly income, subtract your living expenses (HEM benchmark or your declared figure, whichever is higher), subtract debts and ongoing commitments, then check whether the surplus covers the proposed loan repayment at the buffered rate.
The HECS deduction reduces your net income before the surplus calculation. A $7,000/year HECS deduction is roughly $585/month gone before the bank starts assessing servicing. Across a 30-year loan, that lost servicing capacity converts to roughly $80,000 to $100,000 less borrowing capacity for the same income.
Worked example
Sarah earns $110,000 PAYG, no kids, no other debts. Her HECS balance is $40,000.
Without HECS, her borrowing power at current rates is roughly $720,000 (single applicant, 30-year P&I). With the $7,700 annual HECS repayment factored in, her borrowing capacity drops to around $640,000, an $80,000 reduction.
If Sarah's partner Tom also has HECS ($55,000 balance, $10,000/year compulsory repayment) and they apply together, the combined effect compounds. Joint borrowing capacity might be reduced by $130,000–$160,000 compared with applying without the HECS load.
The 2024 / 2025 changes you might have heard about
APRA wrote to lenders in mid-2024 clarifying that the standard 3% serviceability buffer didn't need to be applied to HECS-HELP repayments. Banks read the clarification differently and rolled out updated servicing models in late 2024 and through 2025.
The practical impact: most major lenders now treat HECS as a fixed deduction at the actual rate, not the buffered rate. That softened the borrowing-power hit by roughly 10–20%, depending on the lender. Several non-bank lenders went further and partially or fully exclude HECS for borrowers within 1–2 years of paying it off.
Two takeaways:
- HECS still reduces borrowing power, just less brutally than under the pre-2024 rules.
- Lender choice matters a lot for HECS borrowers, the difference between the most and least generous lender on a $100K salary can be $50,000 of borrowing capacity.
Should I pay off HECS before applying?
Almost never. Three reasons:
- HECS interest cost is very low. Indexation is capped at WPI from 2024 onwards, so effectively you're paying CPI-or-WPI on the balance, far below any commercial debt cost.
- Cash used to clear HECS is no longer available as a deposit or buffer. Reducing your deposit below 20% can trigger LMI, which costs more than the HECS interest you'd save.
- The borrowing-power gain doesn't fully cover the cost. Paying $40K to clear HECS might lift your borrowing capacity by $80K, but you spent $40K of cash that could have been deposit, renovation buffer, or invested elsewhere.
One exception: if you're close to paying HECS off (say, less than $5,000 left and a 1-year time horizon), some lenders will exclude it from servicing if you sign a statutory declaration that you intend to pay it off before settlement. In that narrow case, paying it off (or showing intent to) is worth doing.
What you can do to maximise borrowing
- Choose the right lender. Some treat HECS more generously than others. A broker with up-to-date policy data will know which lender prices your scenario best.
- Reduce credit card limits. Lenders use card limits, not balances, in servicing. Cutting unused credit can recover $30K–$50K of capacity quickly.
- Consolidate other debts. Personal loans, BNPL, and car loans hit servicing harder than HECS does. Clearing or refinancing these often beats paying down HECS.
- Apply jointly only when worth it. If your partner doesn't have HECS, applying solo loses one income but escapes the second HECS hit, sometimes the math works.
Bottom line
HECS-HELP is a real factor in mortgage borrowing power, but it's rarely worth paying off early. Choose the right lender, optimise the things that matter more (credit card limits, other debts), and run scenarios in our borrowing-power calculator. When you're ready, tell us your situation and we'll match you to a broker who knows which lenders favour HECS borrowers in 2026.