Does HECS debt reduce borrowing capacity in Australia?

HECS comes up in almost every first home buyer conversation, and there is a lot of out of date information around, because the rules changed recently. The short version is that HECS does generally reduce your borrowing capacity, but by less than it used to, and how much depends heavily on your situation and your lender. Here is the current picture.

Why HECS affects borrowing

When you have a HECS or HELP debt, the compulsory repayment that comes out of your pay is treated by lenders as an ongoing commitment, much like any other regular outgoing. That reduces the surplus you have available to service a home loan, which in turn lowers the maximum you can borrow. The larger your compulsory repayment, the larger the effect.

It is not a normal debt

HECS is unusual. It is income contingent, repaid automatically through the tax system once your income passes a threshold, and it does not charge interest. Instead, the balance is indexed each year. Because it behaves differently from a normal loan, lenders treat it as an expense on your income rather than a standard debt, which matters for how it hits your assessment.

What changed in 2025

Two shifts in 2025 softened the impact. From 1 July 2025 the repayment system moved to a marginal model, which reduced compulsory repayments for many borrowers. And from 30 September 2025, APRA updated how lenders treat HELP debt, including excluding it from the debt-to-income figures banks report, and gave lenders more flexibility to consider individual circumstances. Much of the older advice online still describes these as upcoming, but they are now in effect.

Lender policies now vary a lot

Because of that added flexibility, lender treatment of HECS now differs widely. Some lenders will overlook the repayment if your debt is due to be cleared within around a year, some have piloted reducing the buffer for borrowers close to paying it off, and some are more generous with smaller balances. The same HECS debt can produce quite different outcomes from one lender to the next.

How much it reduces capacity

There is no single figure, because the effect scales with the size of your compulsory repayment, which depends on your income, and with the lender policy. A larger balance and higher income mean a larger repayment and a bigger effect, while a small or nearly cleared balance may have little impact at the right lender. The only way to know your number is to have it assessed.

Should you pay it off before applying

Sometimes clearing a small remaining HECS balance before you apply can help, and sometimes relying on a lender that overlooks a soon to be cleared debt is the better move. It genuinely depends on your balance, income and deposit, so it is worth getting advice before paying a lump sum, because the best play is not always the obvious one.

HECS indexation

One more thing to keep in mind: HECS is indexed to inflation each year on 1 June, so the balance can move even while you make repayments. It is worth knowing where your balance sits around that time if you are planning to apply for finance.

The broker advantage

Because lender policies on HECS now vary so much, a broker can be especially valuable here, matching you to a lender whose treatment of your particular balance and income gives you the best outcome. That is usually at no cost to you, since the lender pays the broker on settlement.