Will HECS Debt Affect Your Home Loan Application?
Key Takeways
A study loan rarely stops approval; it lowers borrowing capacity because the compulsory repayment is deducted from the income a lender counts toward your mortgage.
Your income drives the impact, not the balance: two people earning the same amount have the same repayment, whether they owe $8,000 or $40,000.
The 2025–26 changes, a 20% balance cut, a $67,000 threshold, and marginal repayments have softened how much HECS reduces borrowing power.
Only pay it off if the balance is small and your deposit is untouched; clearing a credit card or car loan, or preserving your deposit to avoid LMI, often helps more.
If you are carrying a study loan and thinking about buying, the timing makes this question more important than it might first appear. The Reserve Bank of Australia (RBA) cash rate sits at 4.35% after a run of increases through the first half of 2026, and average variable home loan rates are in the high 6% range. Because lenders must test your repayments above the rate you actually pay, most applicants are now assessed at close to 9.5% per annum. At that level of scrutiny, every commitment that trims your usable income, including a compulsory study loan repayment, has a clearer effect on how much you can borrow.
The encouraging part is that the rules around these debts changed substantially in 2025-26. A one-off reduction to balances, a higher repayment threshold and a new way of calculating repayments mean that for many borrowers, a study loan now reduces borrowing power less than it did a year or two ago. So the real questions are not whether you will be approved at all, but how much your loan reduces your capacity, and whether paying it down before you apply is the smart move or a costly one.
This article explains how Higher Education Loan Program (HELP) debt, commonly known as HECS, works in 2026, how lenders factor it into borrowing capacity, and a clear framework for deciding whether to pay it off, keep your deposit, or clear other debts first.
The short answer
A study loan rarely stops a home loan from being approved on its own. What it does is reduce your borrowing capacity, because the compulsory repayment lowers the income a lender can count toward your mortgage. The size of that effect comes down to your income, not the balance you owe, and recent changes have softened it for many people.
In other words, having a HELP debt is not a barrier to approval for most buyers. It is a factor in the calculation, and one you can plan around once you understand how lenders treat it.
What HECS and HELP debt is, and how repayments work in 2026
HECS-HELP is an income-contingent loan that covers tuition for eligible students. It behaves differently from ordinary debt, and the differences matter when a lender assesses you. Understanding the mechanics first makes the lending treatment much easier to follow.
The defining features are straightforward. The loan carries no interest; instead, the balance is indexed once a year on 1 June, by the lower of the Consumer Price Index (CPI) or the Wage Price Index (WPI). Compulsory repayments are not something you arrange yourself; they are withheld through the pay-as-you-go (PAYG) system once your income passes a set threshold, then reconciled when you lodge your tax return. The debt also does not appear on your credit report, so it does not affect your credit score the way a missed credit card payment would.
Three changes reshaped the system from the 2025-26 year, and they are central to this topic:
A one-off 20% reduction was applied automatically to study loan balances as they stood on 1 June 2025, before that year's indexation.
The minimum repayment threshold rose to $67,000, up from $54,435. Below this income, no compulsory repayment is required.
Repayments moved to a marginal system, so you repay only on income above each threshold rather than a flat percentage of your whole income.
Under the current study loan repayment thresholds, you pay 15% of income between $67,000 and $125,000, then a set amount plus 17% on income between $125,000 and $179,285, and 10% of total income once you earn $179,286 or more. The practical result is that a borrower earning $80,000 now has a compulsory repayment of roughly $1,950 a year, where the old flat system charged considerably more. Smaller compulsory repayments leave more income available for a mortgage.
How lenders assess HECS in your borrowing capacity
Borrowing capacity is the amount a lender will advance based on your income, expenses, debts and assessment rules. A study loan enters that calculation through its compulsory repayment, which is deducted from the income available to service a mortgage.
Lenders combine this with the buffer set by the Australian Prudential Regulation Authority (APRA), which requires your repayments to be assessed at your actual rate plus 3 percentage points. So your mortgage is tested at around 9.5%, and your study loan repayment is subtracted from the income that has to clear that test. Some lenders also include the HELP repayment when calculating your debt-to-income (DTI) ratio, which matters because, from February 2026, lenders must limit loans with a DTI of six or more to a small share of their new lending.
Consider a borrower earning $90,000 with a HELP debt. Their compulsory repayment under the marginal system is about $3,450 a year, or roughly $290 a month, which the lender removes from serviceable income before working out the maximum loan. That reduction might lower their borrowing capacity by somewhere in the region of $25,000 to $35,000, depending on the lender. It is meaningful, but it is not the wall that many borrowers fear, and it is smaller than it would have been under the old system.
Why income matters more than your HECS balance
One of the most useful things to understand is that the size of your study loan balance has almost no direct bearing on your borrowing capacity. Lenders are concerned with the repayment, and the repayment is driven by your income.
Two borrowers earning the same income have the same compulsory repayment, even if one owes $8,000 and the other owes $40,000. For both, the effect on borrowing capacity is identical until the debt is cleared. The balance only becomes relevant in one respect: how soon the debt, and therefore the repayment, will disappear. This is why some lenders may take a more flexible view where the balance is small and clearly about to be repaid, and why a large balance on a modest income is not the obstacle it sounds like.
HECS compared with credit cards, car loans, and personal loans
When borrowers worry about debt affecting their application, a study loan is often not the commitment doing the most damage. Ranking your debts by how much they cost your capacity helps you focus on the right one first.
Credit cards are usually assessed on the limit rather than the balance, so an unused $15,000 card reduces your capacity as though it were fully drawn. Car loans and personal loans bring fixed monthly repayments that come straight off serviceable income, often at higher amounts than a study loan repayment. These commitments also carry real interest, unlike a HELP debt. Taken together, this means that for many borrowers, clearing a credit card or paying down a car loan frees up more borrowing power per dollar than paying off a student loan would, while also saving on interest. The study loan is frequently the lowest priority of the group.
Should you pay off HECS before applying?
This is the decision most borrowers are really asking about, and the honest answer is that it depends on your numbers. Paying off a study loan removes the compulsory repayment and lifts your capacity, but it also uses savings that might be better deployed elsewhere. The three situations below cover most cases.
When clearing HECS may help
Paying off the debt can be worthwhile when the balance is small and close to clearing anyway, or when removing the repayment is what tips a borderline serviceability assessment into approval. If you owe a few thousand dollars and clearing it both removes the repayment and pushes your borrowing capacity over the amount you need, the move can be decisive. The benefit is cleanest when you have surplus funds beyond your deposit and buying costs.
When keeping your deposit is smarter
For many buyers, using savings to clear a study loan does more harm than good. Money spent on the debt is money no longer available for your deposit, which can push your loan-to-value ratio (LVR) above 80% and trigger Lenders Mortgage Insurance (LMI), an insurance premium that protects the lender, not you, and can add thousands to your loan. Reducing your deposit can also leave you short of genuine savings, the funds lenders like to see accumulated over time. Because a HELP debt charges no interest and there is no longer any bonus for repaying early, there is rarely any urgency to clear it ahead of a purchase. In most of these cases, the deposit is worth more to your application than the capacity gained from clearing the loan.
When clearing other debts first makes more sense
If your goal is to lift borrowing power with limited cash, a credit card limit or a car loan is usually the better target. These commitments tend to reduce capacity more per dollar than a study loan repayment, and clearing them also stops interest. Working through your debts in order of impact, rather than reaching for the study loan first, often produces a stronger result for the same money.
Real borrower scenarios
The principles become clearer when applied to real situations. The following examples show how a study loan tends to play out across different buyers.
A first home buyer earning $85,000 with a 5% deposit has a compulsory repayment of around $2,700 a year, which trims their capacity but does not rule out a purchase. Their stronger move is usually to preserve the deposit, use a low-deposit pathway to avoid LMI, and leave the study loan in place rather than spending savings on it.
A couple where both partners have a study loan will see two compulsory repayments deducted, one for each income. This reduces combined capacity more noticeably, so it is worth modelling early; in some cases, clearing one small balance can help, but only if it does not erode the deposit.
A borrower with a small balance and a large deposit is the classic case for paying the debt off, since clearing it removes the repayment without putting the deposit or LVR at risk.
A refinancer whose income has grown since they first borrowed may find their compulsory repayment has risen with their income, slightly changing their serviceability compared with their original loan. Reviewing the numbers before refinancing avoids surprises.
How to improve your borrowing power if you have HECS
If your capacity is short, a study loan is rarely the only lever, and often not the most effective one. A few targeted steps can strengthen your position, most within a short timeframe.
Reduce or close unused credit card limits, since the limit is what counts against you.
Pay down higher-cost debts, such as car or personal loans, before considering the study loan.
Keep clean, consistent income evidence, particularly if you are casual, contract, or self-employed.
Only pay down the study loan if the balance is small and your deposit is unaffected.
Match your application to a lender whose policy suits your situation rather than applying broadly.
Each step changes a specific input in the serviceability calculation. The aim is to land on a loan that is comfortable to hold, not simply one that scrapes through assessment.
How a mortgage broker compares lender policies
Lenders do not all treat student loans the same way, and the differences are not published, which makes them hard to navigate on your own. This is where a broker adds practical value beyond finding a rate.
A broker understands which lenders take a more flexible view of a small or nearly-cleared study loan, how each treats your income type, and which combination gives you the strongest result. They can also model whether paying down your debt actually improves your position once the deposit and LMI trade-offs are counted. If you are weighing whether your study loan, deposit, and other debts line up with lender requirements, a mortgage broker in Albury and Wodonga can help you understand your borrowing capacity, compare lender policies, and decide on the most effective next step before you apply. You can also check your current balance and repayment estimate through the HELP repayment estimators and your myGov account.
If you are weighing whether your study loan, deposit, and other debts line up with lender requirements, speaking with a mortgage broker in Albury & Wodonga can help you understand your borrowing capacity, compare lender policies, and decide whether paying down HECS, preserving your deposit or clearing other debts first is the stronger move before you apply.
Frequently Asked Questions (FAQs)
Does HECS affect home loan approval?
It can affect how much you are approved for, but it rarely stops approval on its own. Lenders deduct your compulsory repayment from the income they count toward your mortgage, which lowers your borrowing capacity. For most buyers, a study loan is one factor in the assessment rather than a reason to be declined.
Does HECS show on my credit report?
No. A study loan does not appear on your credit report and does not affect your credit score. Lenders still consider it, because you usually disclose it in your application, and the compulsory repayment shows in your income and tax details, but it is not a black mark against your credit file.
Do lenders look at the HECS balance or the repayment amount?
Lenders focus on the compulsory repayment, which is driven by your income, not the size of the balance. Two people on the same income have the same repayment and the same effect on borrowing capacity, regardless of how much each owes. The balance matters mainly in determining how soon the debt and the repayment will end.
Should I pay off my HECS before applying for a mortgage?
Sometimes, but not always. Clearing the debt removes the repayment and can lift your capacity, which helps most when the balance is small or your application is borderline. If paying it off shrinks your deposit and pushes you into LMI, you are often worse off. Because the loan charges no interest, there is rarely an urgency to clear it before buying.
Is it better to pay off HECS or save a bigger deposit?
For many buyers, a larger deposit is more valuable than clearing a study loan, because it lowers your LVR and can help you avoid LMI. Spending savings on a no-interest debt while increasing your insurance cost is usually a poor trade. The exception is a small balance you can clear without affecting your deposit.
Can lenders ignore HECS if it is nearly paid off?
Some lenders may take a more flexible view where the balance is small and clearly about to be repaid, particularly if you can provide evidence and your overall serviceability is strong. This treatment varies between lenders, which is one reason comparing policies, or having a broker do it, can make a difference for borrowers close to clearing their debt.
What if both applicants have HECS debt?
When both partners have a study loan, the lender deducts a compulsory repayment for each income, which reduces the combined borrowing capacity more than a single debt would. It is still very common and rarely blocks approval, but it is worth modelling early so you know your real figure, and so you can decide whether clearing one small balance is worthwhile.
The Bottom Line
A study loan is unlikely to stop you buying a home, but it does shape how much you can borrow, because lenders subtract the compulsory repayment from your serviceable income. The recent changes, a one-off balance reduction, a higher threshold, and a marginal repayment system, have eased that effect for many borrowers. The balance you owe matters far less than your income, and paying the debt off before applying only makes sense when it does not come at the cost of your deposit. Before you decide, get a clear read on your borrowing capacity and weigh the study loan against your other debts, since clearing a credit card or car loan often does more for your application. With a considered plan, a HELP debt becomes a detail to manage rather than an obstacle to ownership.