Does HECS-HELP Debt Affect Home Loan Applications?

How HECS/HELP debt can affect your home loan application

Does HECS affect home loans?

I was chatting with a friend about this - the Higher Education Contribution Scheme/Higher Education Loan Program (HECS/HELP). She didn’t realise having a HECS/HELP debt could potentially reduce her borrowing power when applying for a home loan.

A few days later, another friend told me they got a rude shock when they found out their borrowing power was reduced by almost $50,000 because of their HECS debt.

As strange as it sounds, having a HECS/HELP debt from university can indeed potentially impact your borrowing power.

This is because HECS repayments reduce your Net Disposable Income (NDI) and, in turn, your potential borrowing power - by up to thousands of dollars.

Here’s everything you need to know about HECS-HELP debt affecting your home loan repayments or application.

What is HECS/HELP debt?

The Higher Education Contribution Scheme (HECS) or Higher Education Loan Program (HELP) is a loan offered by the Australian Government to pay for eligible tertiary education courses.

The HECS/HELP debt does not accrue interest, but is indexed against the Consumer Price Index (CPI). HECS is payable when your taxable income reaches a certain threshold, which is currently around $48,400.

Repayment rates vary depending on your income. The 2022-2023 rates can be found here.

If your repayment income (including your pre-tax income plus super) is $70,000, for example, a repayment rate of 4% or $2800 applies. Repayment rate is based on your income, not the size of your HECS debt.

How HECS affects home loan repayments and borrowing power

Borrowing power (sometimes called serviceability) is the maximum estimated loan amount you’re likely to be approved to borrow. Liabilities such as loan repayments, credit cards, and HECS/HELP repayments can impact your borrowing power.

If you have a HECS/HELP liability and earn above the repayment threshold, repayments will be deducted from your income. Repayment amounts vary, but the deduction means you will have a lower net disposable income. The lower your NDI, the less money you can borrow.

To get a better understanding of serviceability, let’s look at how lenders calculate your Net Disposable Income (NDI), which is what lenders base the former figure on.

[(Taxable Income - Tax Payable Incl. Medicare Levy)+ Non-Taxable Income] - Outgoings = NDI

In the formula used above, ‘outgoings’ refers to expenses and includes your basic living expenses (i.e, like groceries and clothing) and non-basic living expenses (rent, entertainment, health insurance).

Liabilities - including HECS/HELP debt repayments - can reduce your NDI and, therefore, borrowing power. The UNO borrowing power calculator can help you estimate your borrowing power.

Jasmine’s borrowing power

Let’s look at an example. Jasmine wants to buy an apartment valued at $400,000. She has saved $50,000 for a deposit.

Jasmine has a gross income of $80,000 including super - an estimated post-tax income of $4600 monthly*. Her estimated living expenses are $1,660. She has no other costs or liabilities.

She can borrow between $426,000 and $530,000, according to UNO’s borrowing power calculator.

But what if Jasmine has a HECS/HELP debt*? When making 5% HECS repayments, her estimated borrowing power drops to between $397,600 and $494,400 - a reduction of $28,000 and $36,000 respectively.

This example is very specific. The result will be impacted by your individual circumstances and which lender you take a loan out with (each lender assesses HECS/HELP debt differently).

Having said that, it does illustrate why you should be upfront with your broker about your current financial situation. I hope that you have found this helpful and that it may prevent the type of unpleasant surprise my friend was faced with.

Is it better to pay off HECS or mortgage?

HECS is referred to by many - including The Barefoot Investor, Scott Pape - as “the best loan you’ll ever get”.

Increases to HECS are based on the consumer price index (CPI), which rose 7.8% in the 12 months to the December 2022 quarter. But with increases this high, you might be wondering whether to pay off your HECS/HELP loan or pay off your mortgage instead.

The short answer is: there isn’t a ‘right’ answer - financial decisions depend on your personal circumstance and needs greatly. But there are some key considerations.

HECS can impact your borrowing power and does technically compound over time, albeit slowly. But paying it is a potentially large sum that could have gone towards your house deposit, and HECS is waived upon death unlike a mortgage.

Compared to other debts, HECS is also a flexible debt; if you lose your job, repayments can be ‘frozen’ unlike a phone bill or credit card.

Other forms of debt could be costing you more; It’s important to consider other liabilities including credit cards, home loans, and personal loans and the interest these accrue.

Amid recent RBA interest rate hikes, putting extra money towards your mortgage could help reduce further repayments. But you should always consider your personal financial situation before making a decision.

Disclaimer: Advice in this article is general in nature and does not constitute financial advice. Always seek professional advice that considers your individual circumstances when making financial decisions.

*Jasmine’s salary (gross income) is $80,000 (incl. super). Her estimated taxable income is $73,000 while her monthly post-tax income is estimated at $4,600. Using the Household Expenditure Measure (which lenders and brokers will calculate), her monthly living expenses are estimated to be $1,660. Jasmine has no other costs or liabilities, and she does not have any non-taxable income. Using the formula above, Jasmine’s NDI would be $3,020 a month or $36,300 – less than half her salary.**Based on the same input figures as the previous example and 2018-19 Repayment Threshold table 5%. Repayment = $3,652.97 a year ($304.41 per month), decreasing post-tax income to $4384.87. Reduced NDI is $2719.87 a month or $32,638.44. Numbers have been rounded to help readability.**Figures in this article have been rounded for readability (i.e, 426,244 to 426,400). They are for illustrative purposes only.

Book Call Now

Book Call Now

UNO home loans

Need help with your home loan?

UNO Brokers are available night and day for a quick review or your situation and bring expertise that will support better decision making that will save you time and money. Book in a quick call when it suits your busy schedule

Get Started

Related Articles


What our customers are saying

Marlon Baena
July 22, 2024
Karis dedication to assisting with our home loan, even while I was on holidays, truly exemplifies a commitment to excellent service. It's the small things that often make a big difference, and it seems Karis attention to detail and clear communication were key to our smooth home purchase. I highly recommend using UNO and Karis for your home loan needs.
Read more
Olivia Gill
July 18, 2024
We recently used UNO Home Loans to assist us with securing our new mortgage in AU (had moved here from NZ). We had Michael Parsons as our mortgage broker and he was extremely responsive and helpful the whole way through the process. Was a great experience and definitely recommend :)
Read more
Yash Karma
July 18, 2024
Andrew Wyers and team have been amazing. Andrew is very knowledgeable, offers practical advice and he has been pivotal in helping me secure a mortgage at a very competitive interest rate. He was highly responsive to my queries and,being a new immigrant to Perth, he was very patient with my many many questions. An added benefit for me was his knowledge of how superannuation here works. A hec of a great guy to work with, reliable and he goes above and beyond. I would recommend highly recommended him, especially for new immigrants. In fact, I will be using him again very soon!
Read more
Rosie Deiath
July 2, 2024
Karis from UNO was so supportive throughout the entire process of buying our first home. She was contactable at any time, and answered all our silly questions for us. We couldn't recommend Karis and her team enough, as it always felt like she was in our corner with our best interests at heart.
Read more
Jack Mikkelsen
July 2, 2024
We dealt with Karis Churchill as the mortgage broker for our first home. Karis was so supportive and knowledgeable through the whole process! A+ mortgage broker. Definitely utilise her expertise if you’re buying a house!
Read more
Kapil Baldota
June 25, 2024
Eren Tan is absolutely one of the best mortgage brokers in Melbourne! Keeping us well informed throughout the process. Eren gave us a helpful hand in managing to get our loan over the line in a quick and efficient way which is what we wanted and he delivered on that. Thank you Eren Tan!
Read more
June 21, 2024
I only have praise from my Uno experience! I was a broker sceptic, having done all of the hard work myself for my first two property purchases and sale. I'm now a proud broker advocate having used UNO (Karis Churchill) for two refinances and purchase. The value add Karis brought cannot be underrated! Not only has Karis got me the best rate, with a bonus cash back (nearly unheard of in this climate), she has done it with the least back-a-forth and with the least administrative burden on me (the thing that can deters people from refinancing to begin with). Karis is always on top of everything. Karis knows her stuff. She is the most responsive of any professional service provider I've ever used (my banker never text with an update at 7pm on a Sunday) without being overbearing. You know she's got your back and in my experience the value speaks for itself. Thank you to the whole UNO team, thank you especially to Karis.
Read more
Leanda Cawdry
June 8, 2024
Very pleased with the outcome of this process, Michael Parsons and his team at UNO were helpful, communicative, and took all the stress out of the process of finding me a refinance deal that met my needs. Would definitely recommend Michael and UNO, and I already have!
Read more
Glen Matthews
May 29, 2024
Regarding UNO Home Loan services. I had great experience with uno home loans, Michael parsons was my broker for UNO Home Loans we had excellent communication throughout the whole home loan application. If I had any questions on home loan application which were many were answered in great detail. He had the time to assist me in filling out endless application forms at anytime through the day or night which made the application process stress free. So I would strongly recommend Michael parsons from UNO Home Loans to try his services you will not be disappointed. Thanks to Michael parsons I have the lowest home loan interest rate I could ever hope for which I particularly ask for. It’s was a pleasure working with him. And will be using his services in the near future.
Read more
Gillian Anderson
May 28, 2024
Thank you to Michael and UNO for their help in securing our home loan. I like the way they break everything down in simple terms to ensure that you can make the right decision. Michael was polite and very patient to help us get things across the line. We are now sitting in our first home away from rental circus. Can't recommend them enough. Thanks Michael and thanks UNO
Read more
Andy Song
May 17, 2024
Amy has been absolutely wonderful as a broker. I would not hesitate one bit in recommending her services.
Read more
Troy H
May 13, 2024
Scott Wilkinson did a great job as my broker. He was very patient and always happy to answer my numerous questions throughout the considerable period of time that it took to secure a suitable property. Would certainly recommend Scott and the team at UNO for anyone seeking a broker.
Read more