How HECS HELP Affects Your Home Loan Application
When you apply for a home loan, the lender must assess whether you can comfortably afford the repayments. This process is called serviceability assessment, and it accounts for every committed expense you have. Your HECS HELP debt is one of those commitments.
Lenders do not use your total HECS balance to determine the impact on your borrowing power. Instead, they calculate the compulsory annual repayment based on your income bracket using the ATO's published repayment rates. This annual repayment figure is then treated as a recurring expense, reducing the net income available for loan servicing.
For example, if you earn $100,000 per year, the ATO repayment rate is 5.5%. That means the lender adds $5,500 per year (or roughly $458 per month) to your committed expenses. It does not matter whether your HECS balance is $10,000 or $60,000. The lender uses the same repayment figure because the compulsory deduction from your salary is the same regardless of your balance.
This is an important distinction. Unlike a car loan or personal loan where the total balance and monthly repayment both matter, HECS serviceability is driven entirely by your income bracket. A borrower earning $80,000 with a $50,000 HECS balance and a borrower earning $80,000 with a $15,000 HECS balance will have the same impact on their borrowing power, because both fall in the same repayment bracket.
Lenders assess your HECS repayment based on your income bracket, not your HECS balance. The compulsory repayment rate applied to your gross income is what reduces your borrowing power.
Your employer deducts the HECS repayment from your pay automatically once your income exceeds the minimum threshold. Lenders know this deduction is unavoidable, which is why they treat it as a committed expense in every serviceability calculation. You cannot opt out of the compulsory repayment while you are earning above the threshold.
2025-26 HECS HELP Repayment Thresholds
The ATO sets repayment thresholds and rates each financial year. For the 2025-26 income year, the repayment rates are as follows. Your repayment income includes your taxable income plus any net rental losses, total reportable fringe benefits and exempt foreign employment income.
| Repayment Income | Repayment Rate |
|---|---|
| Below $54,435 | 0% (no compulsory repayment) |
| $54,435 to $62,850 | 1.0% |
| $62,851 to $66,620 | 2.0% |
| $66,621 to $70,618 | 2.5% |
| $70,619 to $74,855 | 3.0% |
| $74,856 to $79,346 | 3.5% |
| $79,347 to $84,107 | 4.0% |
| $84,108 to $89,154 | 4.5% |
| $89,155 to $94,503 | 5.0% |
| $94,504 to $100,174 | 5.5% |
| $100,175 to $106,185 | 6.0% |
| $106,186 to $112,556 | 6.5% |
| $112,557 to $119,309 | 7.0% |
| $119,310 to $126,467 | 7.5% |
| $126,468 to $134,056 | 8.0% |
| $134,057 to $142,100 | 8.5% |
| $142,101 to $150,626 | 9.0% |
| $150,627 to $159,663 | 9.5% |
| $159,664 and above | 10.0% |
Source: ATO HELP repayment thresholds and rates for the 2025-26 income year. Thresholds are indexed annually.
The repayment rate applies to your entire repayment income, not just the amount above the threshold. This means that crossing into a new bracket can result in a noticeable jump in your annual repayment. For instance, a borrower earning $94,503 pays 5.0% ($4,725), while a borrower earning $94,504 pays 5.5% ($5,198). That single dollar of income increases the annual repayment by $473.
Worked Example: Borrowing Power With and Without HECS
Consider a single applicant earning $100,000 per year with a $40,000 HECS HELP balance.
Step 1: Determine the repayment rate. An income of $100,000 falls in the $94,504 to $100,174 bracket, which has a repayment rate of 5.5%.
Step 2: Calculate the annual HECS repayment. 5.5% of $100,000 = $5,500 per year, or approximately $458 per month.
Step 3: Assess the impact on borrowing power. Lenders use an assessment rate (typically the loan's interest rate plus a buffer of 3.0%) to stress test affordability. At a typical assessment rate of around 9.0%, every $1 of monthly committed expense reduces borrowing capacity by roughly $130 to $150.
With $458 per month counted as a committed expense, the reduction in borrowing power is approximately:
| Scenario | Estimated Maximum Borrowing |
|---|---|
| Without HECS debt | ~$620,000 |
| With HECS debt ($5,500/yr repayment) | ~$555,000 |
| Difference | ~$65,000 reduction |
These figures are illustrative and assume no other debts, a single applicant with standard living expenses, and a 30-year loan term. Actual borrowing power varies by lender.
The $65,000 reduction is significant, but it does not prevent most borrowers from purchasing a property. It does, however, change the price range you can target and may affect the suburbs or property types within reach. Knowing this number before you start looking helps you set realistic expectations.
The reduction in borrowing power depends on the lender's assessment rate and methodology. See our borrowing power guide for the full picture. Some lenders are more conservative than others. A broker can run your numbers through multiple lender calculators to find the one that treats your HECS most favourably.
Should You Pay Off HECS Before Buying?
This is one of the most common questions borrowers ask, and the answer is usually no. Here is why.
HECS is indexed to CPI, not charged at a commercial interest rate. In the 2024-25 financial year, the HECS indexation rate was 4.0%. While this is higher than previous years, it is still lower than the interest rate on almost every other form of debt. Money used to voluntarily pay off HECS could instead go toward your deposit, reducing the need for Lenders Mortgage Insurance, or into an offset account where it saves you interest at your home loan rate (typically 6% or higher).
Your deposit is more valuable than a HECS reduction. Paying $20,000 off your HECS balance does not change your repayment bracket if you stay in the same income range. That same $20,000 added to your deposit could help you avoid LMI (saving $8,000 to $15,000) or secure a lower loan-to-value ratio, which often means a better interest rate.
When paying off HECS does make sense. There are two scenarios where voluntary repayment can be the right move:
Scenario 1: You are close to a bracket boundary. If your HECS repayment rate is 5.5% at $100,000 income, but you only have $3,000 left on your HECS balance, paying it off entirely removes the $5,500 annual commitment from your serviceability assessment. This recovers the full $60,000 to $70,000 of borrowing power for a $3,000 outlay.
Scenario 2: HECS is the factor causing you to fail serviceability. If your broker has run your numbers and the HECS repayment is the specific item pushing you below the lender's minimum threshold, then paying down enough of the balance to eliminate the debt entirely (or reducing your repayment income below $54,435 through salary sacrifice) may be the most efficient path to approval.
In all other cases, keeping your cash for the deposit and letting HECS repay itself through compulsory deductions is the better financial strategy.
Strategies to Maximise Borrowing Power with HECS
If you have HECS debt and want to maximise your borrowing capacity, these are the most effective approaches.
Do not voluntarily repay unless it changes your bracket materially. As discussed above, voluntary HECS repayments only help if they eliminate the debt entirely or move you below the repayment threshold. Partial voluntary payments that leave you in the same bracket have zero impact on your borrowing power.
Close unused credit cards and cancel Buy Now Pay Later accounts. Lenders assess credit card limits at 3% of the total limit per month, regardless of your balance (see our DTI guide for details). A $10,000 credit card you never use still costs you $300/month in serviceability, which reduces borrowing power by approximately $40,000. Closing it recovers that capacity immediately. BNPL accounts are also flagged by lenders and should be closed before applying.
Reduce other debts first. Car loans, personal loans and credit cards carry real interest and have a larger serviceability impact per dollar than HECS. If you have $10,000 on a personal loan at 12% interest, paying that off before touching your HECS balance will have a far greater positive effect on your borrowing power.
Use a broker to find lenders with more favourable HECS treatment. Not all lenders calculate the HECS impact the same way. Some lenders are more generous in how they account for HECS, and the difference can be meaningful. A broker with access to a broad panel can compare your borrowing power across multiple lenders and identify the best option for your situation.
Consider a joint application. If you are buying with a partner, the HECS repayment is assessed against the individual borrower's income, but the combined household income strengthens overall serviceability. In a joint application, one borrower's HECS debt has a smaller proportional impact because the total income base is larger. This can make a material difference when the property is at the upper end of your budget.
Salary sacrifice into superannuation strategically. If you are near the top of a HECS repayment bracket, salary sacrificing into super can reduce your repayment income and push you into a lower bracket. However, this must be weighed carefully because it also reduces the income the lender uses for serviceability. Speak to a broker and a financial adviser before using this strategy.
How Different Lenders Treat HECS
One of the less understood aspects of HECS and home loans is that lenders do not all assess HECS debt the same way. The variation between lender policies can result in a difference of $20,000 or more in your maximum borrowing amount.
ATO repayment rate method. Most major banks and many non-bank lenders use the actual ATO repayment rate based on your declared income. This is the most common approach and produces a result that matches the compulsory deduction from your pay. If your income is $100,000, they use 5.5% of your gross income as the annual HECS expense.
Flat percentage of balance method. Some lenders ignore the ATO brackets entirely and instead calculate the HECS expense as a flat percentage of your outstanding HECS balance. For example, they might use 3% of a $40,000 balance, which gives an annual expense of $1,200, significantly less than the $5,500 the ATO method produces for a $100,000 income earner. This method can be favourable for borrowers with low HECS balances relative to their income.
Minimum repayment method. A small number of lenders use the minimum annual repayment based on the lowest non-zero bracket, regardless of the borrower's actual income. This is rare but can be advantageous in certain situations.
The variation in lender policies is exactly why working with a broker matters. A borrower who walks into their local bank branch gets assessed under that bank's specific HECS methodology. A broker can compare how your HECS is treated across dozens of lenders and select the one that gives you the strongest borrowing position.
The difference between how two lenders treat your HECS debt can be $20,000 or more in borrowing power. A broker identifies which lender's methodology works best for your specific income and HECS balance combination.
It is also worth noting that lender policies change over time. A lender that was favourable for HECS treatment six months ago may have tightened their approach. Brokers stay across these changes in real time, which is another reason to work with one rather than relying on advice you found online.
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