Does Your HECS Debt Stop You Buying a Home?

You've been putting money away for two years. The rent is high, the savings are real, and then someone at a barbecue says the thing.

"Yeah, but you've got HECS."

So you go home and google it at eleven at night, and every answer contradicts the last one. Some say it barely matters. Some say it costs you a hundred grand.

Here's how it actually works.

HECS is not a debt the way a car loan is

Nobody chases you for a HECS payment. There's no interest, only indexation, and if your income sits under the threshold in a given year, you pay nothing.

But a lender doesn't look at the balance. It looks at your payslip.

Once you earn over the threshold, your employer withholds a compulsory repayment out of your gross pay. That's money leaving your account every fortnight, exactly like a loan repayment.

So a bank counts it as a commitment. Not because it's being harsh, but because that cash genuinely isn't there to service a mortgage.

The bite gets bigger as your income grows

For the 2026 to 2027 income year, the ATO's thresholds start at $69,528. Under that, you repay nothing.

Above it, repayments are worked out on a marginal basis. You pay 15 cents on each dollar between $69,528 and $129,717, then a higher rate on income above that.

Marginal is the newer part, and it's good news. Before the 2025 to 2026 year, crossing a threshold applied the higher rate to your whole income, so a modest pay rise could cost you real money.

Now only the income above the line is counted. But the repayment still grows with your salary, and that figure is what a lender drops into its servicing calculator.

What changed in September 2025

APRA updated its guidance for banks, effective 30 September 2025, and two things shifted.

First, banks now leave HELP debt out of the debt to income ratio they report to APRA. A HECS balance used to make a file look worse on paper than it really was.

Second, and more useful to you, APRA said a lender may reasonably remove HECS repayments from a serviceability assessment where the borrower is expected to clear the debt within about twelve months of compulsory repayments.

The baseline expectation is still that lenders count it. What changed is that they now have room not to, in the right circumstances.

Every lender has written its own policy off the back of that. Which is exactly why two banks can read your identical payslips and land in very different places.

That gap is why it's worth having someone compare policies before you apply anywhere. We've helped over 100 first home buyers into the market, and a fair chunk of that work is this: knowing which lender reads a situation like yours most kindly.

The 20 per cent cut already happened

In July 2025, Parliament passed a one off 20 per cent reduction to student loan debts, applied to your balance as at 1 June 2025. The Department of Education says it wiped over $16 billion across more than three million people.

If you haven't logged into myGov since then, go and look. Your balance is probably lower than the number in your head.

That matters twice over. A smaller balance means fewer years of repayments ahead of you, and for some people it lands them inside that twelve month window.

So should you pay it off before you apply?

This is where it gets personal, so here's the trade off rather than an answer.

Clearing HECS frees up servicing, because the compulsory repayment shrinks or stops entirely. More borrowing power, straight away.

But the money you'd use is the money that was going to be your deposit.

A bigger deposit can mean a sharper rate, or avoiding LMI, or simply getting you to the 5 per cent you need under the First Home Guarantee. Sometimes paying off the last few thousand of HECS tips you over a lender's line. Sometimes it just shrinks your deposit for no gain at all.

It depends on your balance, your income, and which lender you end up with. That's a conversation, not a rule.

Where to start

Run your own numbers first. The calculators on this site are free and don't need an account, so you can see roughly where you sit before anyone gets involved.

Then book a chat and bring the HECS statement with you. We're rated 10/10 on Reviewr by over 100 customers, and no question about this stuff is a silly one.

Let's get you into a home.