How HECS Affects Your Home Loan Borrowing Power

Your HELP debt affects your borrowing power!

The High Education Contribution Scheme (HECS) or Higher Education Loan Program (HELP) has allowed thousands of people who wouldn’t have been able to afford the upfront costs of university to continue their education.

The way that the Australian Taxation Office (ATO) sets out its repayment income thresholds is quite manageable for most income-earners but HELP debt can still have a big impact on the amount you can borrow.

What do banks think of HECS debt?

Like personal loans, car finance, credit cards or dependent children, a HELP loan is treated the same way as any other liability.

The bank runs what is known as a “serviceability” test to calculate your level of income in relation to your current debts and liabilities.

If you’re in a strong position, you should have a certain level of surplus income which means you can qualify for the amount you’re looking to borrow.

If your debt to income level is high, the calculation may show a negative surplus, in which case, your borrowing capacity could be restricted.

Each bank uses their own serviceability calculation!

Even though the National Consumer Credit Protection Act prohibits lenders from approving loans that would put borrowers into financial hardship, it doesn’t provide specific guidelines on how the banks should do this.

Because of this, each lender has their own level of risk that they’re willing to accept with your mortgage application.

Please call us on 1300 889 743 or complete our free assessment form to discover how we can help you qualify for a mortgage.

How much am I paying in HECS right now?

You don’t actually start paying HECS-HELP until you reach a certain income level.

Even once you reach higher income levels, the repayments themselves are quite negligible because you don’t pay back any interest on the debt like a normal loan.

Instead, part of your yearly income is withheld by the Australian Taxation Office (ATO) as per your income level.

Here is the current repayment income thresholds and rates for HELP (F.Y. 2020-21):

Taxable Income Repayment rate
Below $46,620 Nil
$46,620 – $53,826 1.0%
$53,827 – $57,055 2.0%
$57,056 – $60,479 2.5%
$60,480 – $64,108 3.0%
$64,109 – $67,954 3.5%
$67,955 – $72,031 4.0%
$72,032 – $76,354 4.5%
$76,355 – $80,935 5.0%
$80,936 – $85,792 5.5%
$85,793 – $90,939 6.0%
$90,940 – $96,396 6.5%
$96,397 – $102,179 7.0%
$102,180 – $108,309 7.5%
$108,310 – $114,707 8.0%
$114,078 – $121,698 8.5%
$121,699 – $128,999 9.0%
$129,000 – $136,739 9.5%
$136,740 and above 10%

Please refer to the ATO website for updates to the current repayment schedule.

Example of HELP debt affecting borrowing power

The situation

Let’s say that Harry and Sally wanted to borrow $600,000 to purchase their first home.

Sally is a personal assistant and earns $40,000 per annum.

Harry is a paralegal earning around $55,000 in taxable income.

The couple have no children, no credit cards and no personal loans.

Overall, they live within their means and don’t spend a lot on luxury items.

However, Harry has $40,000 owing on his HECS-HELP debt from completing his law degree.

This works out to be around $183 per month based on his income level and the lowest repayment rate for HECS-HELP debt at 4.0%.

It doesn’t sound like much but it has a huge impact on his ability to borrow the amount he needs.

As you can see below, with three of Australia’s largest banks, Harry and Sally’s surplus income is in the red:

  • SBG: -$702
  • CBA: -$688
  • NAB: -$506

Because of Harry’s large HELP debt, he and Sally would be restricted to borrowing around $576,000 with one of our major lenders.

The solution

The first option is to pay down the HECS debt but it’s actually the option that is the least feasible in getting their foot into the property market.

Assuming that Harry continues to earn the same salary, it would take over 18 years to pay off his HELP loan!

The next option would be for Harry to get a pay rise.

He’s currently earning $55,000 but if he were to get a significant pay rise to $68,000, the couple could qualify with one of the major lenders with a surplus income of $86.

However, getting such a large pay rise is still a couple of years off since Harry just started working as a paralegal.

In the meantime, property prices will likely to continue to rise, making it even harder to get into the market.

On top of that, he moves up two levels on the ATO’s repayment rate schedule to 5.0% per annum or $275 per month.

Because of this, Harry and Sally’s choice of lenders is significantly reduced.


After speaking with their mortgage broker, the best option for the couple is to try and come up with larger deposit or try for a cheaper property.

Our best lender is able to consider their application at a little over $576,000.

Harry and Sally could qualify by either:

  • Saving a deposit themselves.
  • Asking one of their parents to gift them the funds.
  • Asking one of their parents to act as a guarantor on their mortgage.

How else can I improve my borrowing power?

Apart from earning a higher income, there are other ways to improve your borrowing capacity or serviceability:

  • Live within your means by cutting out unnecessary spending on luxury items like entertainment and holidays.
  • Cut all unnecessary debts such as credit cards and make extra repayments to pay down existing debts like personal loans faster.
  • Be honest about how much you can afford to borrow and speak to your mortgage broker to crunch the numbers as to how big your mortgage repayments will be.

Check out this page for other tips on how to improve your borrowing power and then have a go at the borrowing power calculator to find out where you stand.

Is the government reducing the threshold?

In its 2017-18 Mid year Economic and Fiscal Outlook (MYEFO), the Turnbull Government proposed reducing the repayment threshold for HELP and ABSTUDY loans from $55,874 to $45,000.

This means thousands of Australians would potentially have to pay their student debts back sooner. This proposal still needs to pass the Senate so don’t worry too much just yet.

As per the announcement, the repayment requirements will be phased in so, if you earn $45,000, you’ll only have to pay back one percent of your loan each year.

*Please note that these proposed changes have come into effect from 1 July 2019.

2021 Update: The compulsory HECS repayment threshold for the 2020/21 income year is $46,620.

What are the new changes?

From 1 July 2019, all study and training loans are now covered by one set of thresholds and rates.

Additionally, the hierarchy in which compulsory repayment thresholds and rates are applied to study and training loans was changed to the following:

  • Higher Education Loan Program (HELP)
  • VET Student Loan (VSL)
  • Student Financial Supplement Scheme (SFSS)
  • Student Start-up Loan (SSL)
  • ABSTUDY Student Start-up Loan (ABSTUDY SSL)
  • Trade Support Loan (TSL)

Do you have a HECS-HELP debt?

Please call us on 1300 889 743 or fill in our online enquiry form so we can properly assess your situation and choose a lender that is likely to approve your home loan.

A HECS shouldn’t stop you from buying your dream home!

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