How HECS/HELP Debt Impacts Borrowing Capacity

Having a HECS or HELP debt does not automatically prevent you from getting a home loan. However, it can reduce how much a lender is prepared to let you borrow.

The main issue is not simply the outstanding debt balance. It is the compulsory repayment that may be deducted from your income once you earn above the applicable threshold. This reduces the income available to meet proposed home loan repayments in the lender’s assessment.

Recent changes to the HELP repayment system and lending guidance have improved the position for some borrowers. However, the outcome still varies between lenders and depends on your income, remaining HELP balance and how soon the debt is expected to be repaid.

Understanding how lenders assess HELP debt can help you choose a suitable lender and decide whether making a voluntary repayment before applying would genuinely improve your position.

What Is HECS/HELP Debt?

HECS-HELP is one type of loan available under the Higher Education Loan Program. The term “HECS debt” is still commonly used, but the broader HELP system can also include debts arising from schemes such as FEE-HELP, SA-HELP and OS-HELP.

HELP debt is repaid through the tax system. Compulsory repayments begin when your repayment income exceeds the threshold for the relevant financial year. You can also make voluntary repayments directly to the Australian Taxation Office. [1]

Unlike a standard personal loan, HELP debt:

• Does not have set monthly repayments based on the amount originally borrowed

• Does not charge conventional interest

• Has compulsory repayments linked to repayment income

• May not require a compulsory repayment when income is below the threshold

• Is indexed annually on the eligible balance

These differences affect how a lender may consider the debt, but they do not mean it can be ignored during a home loan assessment.

Does HECS/HELP Debt Reduce Borrowing Capacity?

It can.

When assessing a home loan, a lender estimates whether you can afford the proposed repayments alongside your existing commitments and living expenses.

If you are required to make compulsory HELP repayments, part of your income is unavailable for the mortgage. APRA has explained that including HELP repayments in serviceability assessments is generally appropriate because the repayments are deducted from gross income and cannot be used to service a home loan. [2]

This means two applicants earning the same salary may receive different borrowing capacity estimates if one has a HELP repayment obligation and the other does not.

The exact reduction is not fixed. It depends on factors including:

• Your repayment income

• Your outstanding HELP balance

• The estimated compulsory repayment

• How long the debt is expected to remain

• The lender’s assessment method and policy

• Your other debts and credit limits

• Your living expenses and dependants

• The proposed home loan amount, term and interest rate

Different lenders may produce different results from the same financial information.

How Do HELP Repayments Work in 2026–27?

For the 2026–27 income year, the minimum repayment income is $69,528. A compulsory repayment applies once repayment income exceeds that amount. [1]

The current system uses marginal repayment rates. This means the repayment is calculated on income above the relevant threshold rather than applying a percentage to your entire income.

The 2026–27 repayment structure is:

Repayment income can include more than your taxable salary. The ATO applies specific adjustments when determining repayment income, so your final compulsory repayment should be confirmed through the ATO or a registered tax agent. [3]

Thresholds and rates are indexed and can change each financial year. An article or calculator using earlier repayment rates may no longer produce a reliable estimate.

A Simple HELP Repayment Example

Assume your repayment income is $100,000 for the 2026–27 financial year.

Using the marginal repayment rate:

• Repayment income: $100,000

• Current minimum threshold: $69,528

• Income above the threshold: $30,472

• Compulsory repayment at 15 cents per dollar: approximately $4,571 per year

• Monthly equivalent: approximately $381

This is a simplified example. The ATO determines the actual compulsory repayment after considering the borrower’s repayment income for the financial year.

A lender may treat the estimated repayment as an ongoing reduction to the income available for the proposed home loan. Even though the HELP debt has no conventional monthly instalment, the repayment obligation can still reduce assessed surplus income.

The effect on borrowing capacity will not necessarily equal the debt balance or the annual repayment multiplied by the home loan term. Each lender applies its own serviceability calculation.

Does the HELP Balance or Repayment Matter More?

In many assessments, the compulsory repayment has a greater immediate effect than the size of the balance.

For example, two people earning the same income may have:

• Borrower A: HELP debt of $15,000

• Borrower B: HELP debt of $45,000

If both are expected to make the same compulsory repayment based on their income, a lender may initially apply a similar serviceability reduction.

The balance still matters because it indicates how long the repayment obligation may continue. A smaller balance may be cleared sooner, which can create different options under some lender policies.

This is why paying a HELP debt down slightly may not improve borrowing capacity. If the debt remains outstanding and the compulsory deduction continues, the lender may assess the position in much the same way.

Can a Lender Ignore HELP Debt If It Is Nearly Repaid?

Potentially, but this is not automatic.

APRA finalised updated guidance in June 2025 allowing banks greater flexibility to exclude HELP repayments from a serviceability assessment where the borrower is expected to be largely unaffected by the repayments over the term of the mortgage. [4]

APRA indicated that a debt expected to be repaid within approximately 12 months may be considered differently from one expected to remain for several years. The decision remains subject to the lender’s own policy, risk appetite and assessment of the borrower’s circumstances. [4]

ASIC also updated its responsible lending guidance in 2025 to recognise that HELP debt differs from other debts because repayments depend on income. The change clarified how lenders may consider student loan commitments without removing their broader responsible lending obligations. [5]

In practical terms, some lenders may consider excluding the repayment where:

• The remaining HELP balance is low

• Compulsory repayments are expected to clear it soon

• The borrower can provide current evidence of the balance

• The lender’s policy permits an exception

• The overall application remains acceptable

Not every lender will apply the guidance in the same way. Some may continue including the repayment until the HELP debt has been paid in full and the closure can be verified.

How Did the 20% HELP Debt Reduction Affect Borrowers?

The Government legislated a 20% reduction to HELP debts held as at 1 June 2025. The ATO began applying the reduction automatically, with no application required from eligible debt holders. [6]

A lower balance can be helpful where it brings the debt closer to being repaid. However, the reduction does not automatically remove the compulsory repayment from a lender’s assessment.

The potential lending benefit depends on whether:

• The reduced balance can be cleared in the near term

• The lender considers near-term repayment under its policy

• The compulsory repayment remains payable based on your income

• The updated balance is visible and can be verified

Check your current HELP account through ATO online services rather than relying on an older statement or estimate.

Is HELP Debt Interest-Free?

HELP debt does not charge interest in the same way as a personal loan or home loan. However, eligible debt is indexed annually.

Indexation is applied on 1 June to the portion of the accumulated debt that has remained unpaid for more than 11 months. The indexation rate is based on the lower of the Consumer Price Index or Wage Price Index. The rate applied on 1 June 2026 was 2.8%. [7]

Indexation increases the outstanding balance, but the compulsory repayment remains primarily linked to repayment income rather than being calculated as a standard principal-and-interest instalment.

Because indexation rates and HELP balances change, use current information when preparing a home loan application.

Should You Pay Off HECS/HELP Before Applying for a Home Loan?

Not necessarily.

Paying the debt in full may improve borrowing capacity if it removes a compulsory repayment from the lender’s assessment. However, using a large amount of cash to clear HELP debt could reduce your deposit, purchasing-cost funds or emergency savings.

Before making a voluntary repayment, compare:

• The expected increase in borrowing capacity

• The amount required to clear the debt completely

• The effect on your property deposit

• The resulting loan-to-value ratio

• Whether Lenders Mortgage Insurance may apply

• Your remaining funds for stamp duty and other purchasing costs

• The value of retaining an emergency buffer

• Whether the lender can already apply a near-term repayment exception

Paying a $10,000 HELP balance may be worthwhile if it materially improves serviceability and you still retain sufficient funds. It may be less beneficial if using the same $10,000 leaves you short of the deposit required for the purchase.

The answer should be based on a complete borrowing assessment, not a general rule.

Will a Partial Voluntary Repayment Improve Borrowing Capacity?

It may not.

StudyAssist explains that voluntary repayments are additional to compulsory repayments and do not count towards or reduce the compulsory repayment determined for the relevant income year. [1]

If a voluntary repayment leaves the HELP debt open, the lender may still include the compulsory repayment when assessing the home loan.

A partial repayment is more likely to be relevant where it reduces the balance enough for the lender to consider that the remaining debt will be repaid in the near term. This depends entirely on the lender’s policy and the evidence available.

Do not make a large voluntary payment solely on the assumption that it will increase your borrowing power. Ask your mortgage broker to calculate the likely position before transferring the funds.

What Happens If You Pay the HELP Debt in Full?

If you decide to clear the debt, allow enough time for the payment to be processed and reflected in your ATO account.

The lender may request:

• A current ATO statement showing the balance

• Evidence of the final payment

• Confirmation that no HELP debt remains

• Updated payslips showing any change to withholding

PAYG amounts withheld by an employer are not immediately applied to the HELP balance. The ATO usually determines the compulsory repayment when the tax return is lodged. [1]

This can make the timing of a payout more complicated than simply subtracting year-to-date payroll deductions from the online debt balance. Confirm the actual amount required with the ATO or a registered tax agent before paying it out.

Can You Get Pre-Approval With HELP Debt?

Yes. Many borrowers obtain home loan pre-approval while holding a HELP debt.

The lender will assess the HELP obligation alongside your:

• Income and employment

• Living expenses

• Deposit or usable equity

• Credit cards and other loans

• Dependants

• Credit history

• Proposed loan amount

• Property plans

The pre-approval amount may be lower than it would be without the compulsory repayment. If the debt is close to being cleared, provide current evidence so the lender can consider whether any policy flexibility is available.

Pre-approval remains conditional and is not a guarantee of final finance.

Can Two Lenders Calculate the Impact Differently?

Yes.

Lenders can differ in how they:

• Estimate the compulsory HELP repayment

• Verify the outstanding balance

• Treat PAYG deductions shown on payslips

• Assess debts expected to be repaid soon

• Apply exceptions or manual credit assessment

• Calculate other income and expenses

• Apply serviceability buffers and assessment rates

A lender that produces the highest online borrowing estimate may not necessarily offer the most suitable overall loan. Interest rates, fees, features, property policy and approval requirements also need to be considered.

This is where lender selection can materially affect the outcome.

How Can You Improve Your Position Before Applying?

If HELP debt is affecting your borrowing capacity, possible steps may include:

Confirm your current balance

Access ATO online services through myGov and obtain an up-to-date statement. Make sure any legislated reduction or recent voluntary payment has been processed.

Review the debt’s expected repayment timeframe

Ask your mortgage broker whether the remaining balance may qualify for different treatment under any suitable lender’s policy.

Compare paying it out with retaining the cash

Calculate both scenarios before making a payment. One scenario may provide greater borrowing capacity, while the other may provide a stronger deposit or lower loan-to-value ratio.

Reduce other liabilities

Credit card limits, personal loans, car finance and buy now, pay later facilities may also reduce borrowing capacity. Depending on the circumstances, addressing these commitments may be more effective than partially reducing HELP debt.

Avoid unnecessary new credit

Do not apply for new finance or increase credit limits while preparing for a home loan unless the effect has been assessed.

Keep your supporting documents current

Prepare recent payslips, bank statements, income documents and your ATO HELP statement so the lender can assess accurate information.

What Documents May Be Required?

Depending on the lender and application, you may need to provide:

• Recent payslips showing HELP withholding

• An ATO HELP account statement

• Evidence of the current outstanding balance

• Your most recent income statement or tax return

• Confirmation of a voluntary repayment

• Evidence that the debt has been cleared

• Updated payroll records where withholding has changed

Additional documents may be required where you are self-employed, receive variable income or have recently changed employment.

How Can Homefront Mortgages Help?

Homefront Mortgages can compare how suitable lenders may assess your HELP debt and model the effect on your proposed home loan.

We can help you:

• Estimate your current borrowing capacity

• Calculate the likely HELP repayment used in the assessment

• Compare outcomes across suitable lenders from our panel

• Check whether near-term repayment policies may apply

• Model paying out the debt versus retaining the funds for your deposit

• Review your credit cards and other liabilities

• Prepare the supporting documents

• Apply for pre-approval

• Guide the application through to settlement

The goal is not simply to find a lender willing to approve the application. It is to identify a loan and strategy that suit your complete financial position.

Speak With Homefront Mortgages

If you have a HECS or HELP debt and are planning to buy, do not assume you need to repay it before applying—or that every lender will assess it in the same way.

Homefront Mortgages can review your income, HELP balance, deposit and other commitments to explain how the debt may affect your borrowing position.

Speak with us before making a large voluntary repayment so you can compare the available options and make a more informed decision.

Important Information

This article provides general information only and does not constitute personal financial, credit, tax or legal advice. It does not take into account your objectives, financial situation or individual needs.

HELP repayment thresholds, rates, indexation and government policies may change. Confirm current information with the Australian Taxation Office and StudyAssist. Obtain tax advice from a registered tax agent where appropriate.

Borrowing capacity and loan approval are subject to lender assessment, satisfactory documentation, property valuation, eligibility requirements and applicable lending criteria. Interest rates, fees, terms and conditions may change. Fees and charges may apply.

Homefront Mortgages does not represent every lender or home loan available in the market. Any figures and examples are illustrative only and do not represent a tax calculation, recommendation, loan approval or offer of finance.

References

1. StudyAssist, Loan Repayments—HELP Debt: https://www.studyassist.gov.au/managing-and-repaying-your-loan/loan-repayments

2. APRA, Clarifying the Treatment of HELP Debt Obligations: https://www.apra.gov.au/news-and-publications/clarifying-treatment-help-debt-obligations

3. Australian Taxation Office, Study and Training Loan Repayment Thresholds and Rates: https://www.ato.gov.au/tax-rates-and-codes/study-and-training-support-loans-rates-and-repayment-thresholds

4. APRA, Clarifying the Treatment of HELP Debt Obligations—Response to Consultation: https://www.apra.gov.au/news-and-publications/clarifying-treatment-help-debt-obligations-response-consultation

5. ASIC, Updated Guidance on Student Loan Commitments: https://www.asic.gov.au/about-asic/news-centre/news-items/asic-has-updated-guidance-to-clarify-treatment-of-student-loan-commitments-by-banks-and-lenders/

6. StudyAssist, 20% Reduction of HELP Debts: https://www.studyassist.gov.au/news/20-reduction-help-debts

7. StudyAssist, Loan Increases and Indexation: https://www.studyassist.gov.au/managing-and-repaying-your-loan/loan-increases-and-indexation