Does Your HECS or HELP Debt Affect Your Home Loan? What Changed This Year
Most Australians with a HECS or HELP debt know it comes off their pay slip. Fewer realise it can also shrink what a bank will lend them. Does HECS or HELP debt actually affect your home loan, and did the 2025 changes make it better or worse?
How lenders actually treat your HECS or HELP debt
Lenders don't look at your total HECS balance the way they look at a credit card or car loan. What they care about is your compulsory annual repayment, the amount the ATO takes out of your pay based on your income. That repayment gets treated as a fixed monthly expense in your serviceability assessment, right alongside rent, insurance, and other regular bills.
The bigger that repayment, the less income the lender counts as available to service a mortgage. So two people earning the same salary can have quite different borrowing power if one has a HECS debt and the other doesn't.
This catches a lot of people off guard, especially those who went through longer degrees or postgraduate study. Teachers, nurses, doctors, and engineers often carry larger HELP balances than they realise, simply because their courses ran longer or cost more. If that sounds like you, get the numbers checked before you start looking at properties, not after you've found one you love.
What changed in 2025 and 2026
A few genuine changes have landed recently, and a lot of borrowers still haven't caught up with them.
From 1 June 2025, the government applied a flat 20% cut to every outstanding HELP balance. The ATO processed this automatically, so most people saw their debt drop without doing anything.
From 1 July 2025, repayments moved to a marginal system. You now only pay based on the portion of your income above the threshold (around $67,000), rather than a flat percentage of your whole income. For most borrowers, this lowered the compulsory annual repayment.
From 30 September 2025, HELP debt was excluded from APRA's debt-to-income (DTI) reporting definition. That means your HECS balance itself no longer counts toward that particular regulatory ratio.
Here's the catch. That last change affects a specific regulatory metric, not how individual lenders assess your loan application day to day. Most banks still add your compulsory HECS repayment into their serviceability calculator as an ongoing expense. So even with a smaller balance and a lower repayment than before, HECS can still take a bite out of your borrowing power.
How much borrowing power can HECS actually cost you
The real-world impact depends on your income and your remaining balance, but it's often bigger than people expect.
A borrower with a $50,000 HECS debt earning $80,000 a year might have a compulsory repayment of around $330 a month.
Lenders typically treat that as a locked-in expense, which can reduce total borrowing capacity by somewhere between $15,000 and $80,000, depending on the loan size and your income.
Two borrowers with identical incomes and no other debts can end up with meaningfully different pre-approval amounts purely because of a HECS balance.
If you're already close to your borrowing limit, that gap can be the difference between qualifying for the property you want and having to look elsewhere.
The exact figure also shifts depending on which lender you use. Some banks apply a simple percentage-of-income formula for the compulsory repayment, while others ask for your actual HELP balance and calculate it more precisely. That's one reason two lenders can offer very different maximum loan amounts to the same applicant with the same HECS debt.
Ways to reduce the impact
You don't need to panic-pay off your HECS debt before applying for a home loan (and for most people, that's not the best use of cash anyway). But a few things genuinely help:
Get an accurate read on your compulsory repayment amount before you apply, not an estimate. Lenders calculate this differently depending on the year's thresholds.
Ask your broker to run scenarios with a couple of different lenders. Servicing calculators vary more than most borrowers expect, and some are more generous with HECS treatment than others.
If you're planning a large voluntary HECS repayment anyway, time the conversation with your broker around it. It won't always move the needle, but sometimes it does.
Keep other debts and recurring costs as lean as possible in the months before you apply. HECS is one fixed expense among several, and lenders add them all up.
The best next step is usually a proper borrowing capacity assessment rather than guesswork. Our guide on how to increase your borrowing capacity for a home loan in Australia covers the other levers you can pull, and our guide on why your borrowing capacity may be lower than expected walks through the full list of factors lenders weigh, HECS included.
Ready to find out what HECS is really costing your borrowing power?
The only way to know your real number is to run it properly, with your actual income, your actual HECS balance, and more than one lender's calculator. That's the work we do for our clients every day.
Get in touch and we'll walk you through exactly what you can borrow and how your HECS debt fits into the picture.
And on a final note, a portion of every deal we settle at Echidna Equity goes to the Australian Wildlife Conservancy, because a good home loan outcome shouldn't be the only thing worth celebrating.