The short version: your HECS balance matters much less than most people think, and your compulsory repayment matters much more.
Lenders are not assessing whether you owe $18,000 or $60,000. They are looking at the amount coming out of your income every pay cycle, because that is money you cannot use to service a mortgage.
Why the repayment is what counts
HECS repayments are taken as a percentage of your income once you pass the compulsory repayment threshold, and the percentage steps up as income rises.
From a lender's point of view, that is simply less income available. Someone on $95,000 with a compulsory HECS repayment has a smaller assessable surplus than someone on $95,000 without one, and the assessment flows from there.
Which is why the balance is close to irrelevant. Two graduates on the same salary, one owing $15,000 and one owing $55,000, are repaying at the same rate and will be assessed almost identically. The person with the larger debt will be repaying for longer, but that is not what the serviceability calculation is looking at.
The bit that catches people: it does not show on your credit file
HECS and HELP debts sit with the ATO. They do not appear on your Equifax file or any other credit report.
This leads some borrowers to assume they can leave it off an application. You cannot. The compulsory repayment appears on your payslips and in your tax return, both of which the lender reads. Omitting it from a declaration and having it turn up in the documents damages your credibility on the file, which is a worse outcome than the deduction itself.
Should you pay it off before buying?
Usually not, and the reasoning is about where the money goes rather than about HECS specifically.
Money used to clear a HECS balance is money not available as a deposit. A larger deposit lowers your LVR, which can reduce or remove lenders mortgage insurance, improve your rate, and widen the lenders available to you. Those effects are typically worth more than removing a compulsory repayment.
HECS is also indexed rather than charged interest at a commercial rate, which makes it among the cheapest debt most people will ever hold. Clearing cheap debt to take on expensive debt is the wrong direction.
The one case where paying it off makes sense is when you are close to the end of it and the repayment is the specific thing standing between you and an approval. If you owe a small amount and clearing it removes a compulsory repayment that is pushing your assessment under a lender's threshold, that is a targeted, worthwhile move. It is a narrow case and worth checking rather than assuming.
Lender treatment is not uniform
Most lenders assess the compulsory repayment as a commitment against your income. Beyond that, the treatment differs in ways that matter if you are close to a threshold:
- Some include the HECS balance in the debt-to-income calculation, which affects borrowers near a DTI cap. Caps across the ten lenders we model in detail range from under 6x to no hard cap at all.
- Some apply more lenient treatment where the debt will be cleared within a short period, which is worth raising if you are nearly done.
- Treatment of income for the repayment threshold can vary where you have multiple income sources.
None of this is published prominently, and it is one of the areas where lender selection changes the answer for borrowers on the margin.
What to do if HECS is holding you back
Do not let it stop you applying. A compulsory repayment is a normal part of a huge number of Australian applications. Lenders are entirely used to it.
Fix the things that cost you more. Credit card limits are assessed in full whether you use them or not, and a $30,000 unused limit almost certainly costs you more borrowing capacity than your HECS repayment does. That one is free to fix and takes a phone call.
Check where you sit in the repayment bands. If your income is just over a threshold, salary sacrificing into superannuation can reduce the income used to calculate the compulsory repayment. That has consequences for your assessable income too, so it can help or hurt depending on the lender. Worth modelling rather than guessing, and worth a word with your accountant.
Get the lender question answered before you apply. If HECS is genuinely marginal for you, the lender who treats it most favourably is the one worth applying to, and finding that out costs nothing.
Your Kreddi Score assesses your full position, including commitments like HECS, against real lender policy and shows which lenders will lend you the most. Fifteen minutes, no impact on your credit file.
You can also model the effect yourself with the borrowing power calculator by entering your compulsory repayment as an existing commitment and comparing the result with and without it.
Frequently Asked Questions
Does HECS debt affect a home loan application in Australia? Yes, but through the compulsory repayment deducted from your income rather than the balance owing. A borrower repaying HECS has less assessable surplus, which reduces borrowing capacity. The size of the balance matters far less than the repayment rate.
Should I pay off my HECS before applying for a home loan? Usually not. Money used to clear HECS is money not available as a deposit, and a larger deposit typically improves your position more. The exception is when you are within a year of clearing it and the repayment is the specific thing pushing you over a lender's threshold.
How much does HECS reduce borrowing power? It varies with income because the repayment rate is a percentage that rises in bands. As a rough guide, a compulsory repayment of a few thousand dollars a year can reduce borrowing capacity by tens of thousands, since lenders treat it as a reduction in available income.
Do all lenders treat HECS the same way? No. Most assess the compulsory repayment as a commitment. Some include HECS in the debt-to-income calculation as well, which affects borrowers close to a DTI cap. A minority apply more lenient treatment where the balance will clear within a short period.
Does HECS appear on my credit file? No. HECS and HELP debts are administered by the ATO and do not appear on your Equifax or other credit reports. Lenders learn about it from your payslips and tax returns, where the compulsory repayment is visible, so it cannot be left off an application.
See What Your HECS Is Really Costing You
HECS reduces your borrowing power through the compulsory repayment, not the balance, and lenders do not all treat it the same way. Whether paying it down helps you depends on which lender you end up with.
Model the effect with the borrowing power calculator, then get your Kreddi Score to see which lenders would approve you with the debt where it sits today. Free, no credit enquiry, about 15 minutes.
Repayment thresholds and rates are set by the ATO and change each financial year. Confirm current figures with the ATO before relying on them. This is general information, not personal, financial or tax advice. NIK Finance Pty Ltd is a Credit Representative (567387) of Finsure Finance & Insurance Pty Ltd, Australian Credit Licence 384704.