HECS Debt and Your Mortgage: How Student Debt Affects Borrowing Power

If you have a HECS-HELP debt and you're trying to buy a home, here's what banks actually do: they treat your compulsory HECS repayment as a monthly ongoing liability — the same way they treat credit card repayments or a car loan. That liability reduces your serviceable income, which reduces how much they'll lend you.

The good news is that the new 2026-27 marginal HECS repayment system has reduced the impact for many borrowers — particularly those earning closer to the $69,528 threshold. Under the old flat-rate system, someone on $80,000 faced a HECS repayment around $4,000 per year. Under the new marginal system, the same person pays just $1,571 per year. That's a meaningful difference when banks are calculating how much you can borrow.

This guide explains exactly how lenders assess HECS, how much it reduces your borrowing power at different income levels, and whether it ever makes sense to pay off your HECS debt before applying for a home loan.

How lenders treat HECS debt in a serviceability test

When a bank calculates how much it will lend you, it runs a serviceability assessment: your income minus all your ongoing financial commitments must be enough to service the proposed loan at a stressed interest rate (typically the actual rate plus a 3% buffer — so around 9.5% at current rates).

Your HECS repayment counts as a committed monthly expense in that assessment. The bank doesn't look at your HECS balance — it doesn't matter whether you owe $10,000 or $80,000. What matters is the annual compulsory repayment you're required to make based on your income.

The rule: every $100 per month in ongoing commitments reduces your maximum borrowing capacity by approximately $14,000–$16,000 at current assessment rates. So a $250/month HECS repayment reduces your borrowing power by roughly $35,000–$40,000 — and a $600/month repayment cuts it by $85,000–$95,000.

How the 2026-27 marginal repayment system changed things

From 1 July 2026, the ATO switched to a marginal HECS repayment system. Previously, a flat percentage applied to your entire income. Now, only the income above the threshold is subject to the repayment rate.

The 2026-27 HECS repayment rules:

Repayment income	Rate applied
Below $69,528	No compulsory repayment
$69,528 – $129,717	15c per $1 over $69,528
$129,718 – $186,050	$9,028 + 17c per $1 over $129,717
$186,051 and above	10% of total repayment income

Key difference from the old system: Under the previous flat-rate structure, a $5,000 increase in income could push you into a higher repayment percentage applied to your entire income — a disproportionate jump. The marginal system eliminates this cliff. You now only repay on the income above $69,528.

How much HECS reduces your borrowing power — by income level

The following examples assume a standard lender serviceability assessment. Actual impact varies between lenders — some are more generous than others — and a mortgage broker can help identify the most HECS-friendly lenders for your situation.

At $60,000 income

Under the 2026-27 system, $60,000 is below the $69,528 repayment threshold. No compulsory HECS repayment is triggered. Most lenders will not include a HECS liability in your serviceability assessment at this income level, as there is no current repayment obligation.

Borrowing power impact: minimal to nil — provided your HECS balance isn't so large that lenders assume you'll soon cross the threshold.

At $90,000 income

Annual HECS repayment: 15c × ($90,000 − $69,528) = 15c × $20,472 = $3,071/year ($256/month)

	Amount
Annual HECS repayment	$3,071
Monthly HECS repayment	$256
Estimated reduction in borrowing power	$36,000 – $45,000

Under the old flat-rate system, the same person would have faced a ~$4,500–$5,400 annual repayment, reducing borrowing power by $60,000–$75,000. The new marginal system is a meaningful improvement for this income range.

At $120,000 income

Annual HECS repayment: 15c × ($120,000 − $69,528) = 15c × $50,472 = $7,571/year ($631/month)

	Amount
Annual HECS repayment	$7,571
Monthly HECS repayment	$631
Estimated reduction in borrowing power	$88,000 – $100,000

At this income level, the impact is substantial. A borrower on $120,000 with a significant HECS balance is looking at roughly $90,000 less in borrowing capacity compared to an equivalent borrower with no student debt.

Use our HECS / HELP Repayment Calculator to see your exact 2026-27 repayment amount based on your income and remaining balance.

Should you pay off HECS before applying for a mortgage?

This is the question most people get wrong. The short answer for most borrowers is no — and here's why.

Why paying off HECS usually isn't the right move

1. The money does more as a deposit. Every dollar you put toward your deposit reduces your loan amount (which reduces monthly repayments) and can move you above key LVR thresholds (90% → 80% → 70%), which improves your rate and removes Lenders Mortgage Insurance. A dollar toward your deposit works harder than a dollar toward your HECS balance.

2. HECS indexation is low. From 1 June 2026, HECS debt is indexed at 2.8% per year — well below current mortgage rates of 6–6.5%. You're not saving money by rushing to repay a 2.8% debt when that cash could be earning 5.5% in a savings account or deployed as deposit equity.

3. The bank cares about the repayment, not the balance. Once you pay off HECS entirely, the liability disappears from your serviceability assessment — yes. But partial repayments that reduce your balance don't change your annual repayment amount (because repayments are income-based, not balance-based). So unless you can fully pay it off, partial payments don't improve your serviceability assessment at all.

When it might make sense to pay off HECS first

Situation 1: You're close to paying it off anyway. If your remaining HECS balance is $8,000–$12,000 and you could eliminate it entirely within 6–12 months, it may be worth doing before applying. Clearing it removes the monthly liability from your assessment — potentially adding $15,000–$20,000 of borrowing capacity.

Situation 2: You're right on the serviceability borderline. If a lender's assessment puts you $30,000–$40,000 short of what you need to borrow, and your HECS repayment is the key liability dragging you down, clearing a small remaining HECS balance could tip the balance. Ask a mortgage broker to run the numbers both ways.

Situation 3: Your income is close to the repayment threshold. If you earn $72,000–$78,000, your HECS repayment is modest ($370–$1,271/year). In this band, the impact on borrowing power is smaller, and it's even less likely to be worth rushing to clear.

The salary sacrifice strategy

If you're earning above $69,528 and want to reduce the HECS repayment the bank sees, salary sacrificing into super can help. Super contributions (including salary sacrifice amounts) reduce your taxable income, and HECS repayments are calculated on your repayment income (which for most employees closely tracks taxable income).

Example: You earn $90,000 and salary sacrifice $5,000 into super. Your repayment income drops to $85,000. HECS repayment becomes 15c × ($85,000 − $69,528) = 15c × $15,472 = $2,321/year instead of $3,071 — saving $750 in HECS repayments and reducing your monthly liability in a bank's serviceability assessment.

This strategy works best when you have a meaningful HECS balance remaining and are already planning to salary sacrifice to super for retirement savings purposes.

Lender differences: not all banks treat HECS the same

Banks don't all apply the same rules to HECS. Key variations:

Small HECS balances (under ~$20,000): Some lenders will discount or ignore HECS in their assessment if the balance is low and likely to be repaid within a few years, particularly if you provide an ATO statement confirming the balance
Assessment interest rate: Different lenders apply different stress-test buffers — a more lenient lender's assessment may reduce the HECS impact
Repayment income calculation: Most lenders use your gross income to estimate HECS repayments, but some make adjustments for salary packaging or other factors

A mortgage broker with access to multiple lenders can identify which institutions will give you the best result given your specific HECS balance and income. If your HECS debt is materially reducing what you can borrow, this conversation is worth having before you decide to apply.

Use our Borrowing Power Calculator to estimate your maximum loan amount at your income level.

Key facts to know before applying

A quick reference for the most important numbers going into a home loan application with HECS debt:

Item	2026-27 figure
HECS repayment threshold	$69,528
Repayment rate on income above threshold	15c per $1 (up to $129,717)
HECS indexation rate (applied 1 June 2026)	2.8%
Standard assessment interest rate buffer	+3% on top of actual rate
Typical impact per $100/month of commitment	$14,000–$16,000 reduction in borrowing capacity

Frequently asked questions

Does HECS debt show up on a credit check?

No. HECS-HELP debt does not appear on your credit file (it's a government loan, not a commercial credit product). However, banks ask you to declare it when applying for a mortgage, and they factor in the compulsory repayment as part of your serviceability assessment. Being less than honest about HECS on a loan application is loan fraud.

How do banks find out about your HECS balance?

Banks ask you to declare it. They may also request an ATO portal statement showing your HECS balance, or they may estimate from your income what your repayment would be. Always disclose it — lenders have access to ATO-linked income verification systems.

Does the HECS balance matter or just the repayment amount?

For serviceability, lenders primarily care about the annual repayment amount — because that's the ongoing liability affecting your cash flow. However, some lenders also consider whether the balance is large enough to be a long-term burden, and having a very large HECS balance ($80,000+) can occasionally trigger closer scrutiny.

Can I use my First Home Super Saver (FHSS) scheme savings alongside having HECS?

Yes. HECS debt doesn't disqualify you from the First Home Super Saver scheme. You can withdraw up to $50,000 (of personal voluntary super contributions) under FHSS to use as a home deposit, while keeping your HECS debt separate. Note that the FHSS release amount is taxed at your marginal rate minus a 30% offset.

Will paying off my HECS improve my home loan application immediately?

If you pay it off in full: yes, the monthly liability disappears from your serviceability assessment, which can add $35,000–$100,000 to your borrowing capacity depending on your income. If you make partial repayments: generally no — partial payments don't change the compulsory annual repayment amount because HECS repayments are income-based, not balance-based. The liability only disappears when the balance reaches zero.

What if I'm just below the repayment threshold?

If you earn below $69,528, no compulsory HECS repayment applies under 2026-27 rules. Most lenders won't factor in a HECS liability in their serviceability assessment at this income level, provided you disclose the debt honestly. This means HECS typically has the least impact on borrowing power for lower-income borrowers.

HECS repayment thresholds, marginal rates, and indexation figures in this article are current as at July 2026 for the 2026-27 financial year. The repayment threshold of $69,528 and the 15c/17c marginal rates apply from 1 July 2026. Borrowing power estimates are indicative and vary by lender, loan type, and individual circumstances. This article is general information only — speak with a licensed mortgage broker or financial adviser for advice specific to your situation.