Does HECS-HELP debt affect your home loan borrowing power?

A woman in a graduation gown smiles and thinks about her borrowing power.

HECS-HELP loans have empowered many Australians to go to university and achieve higher-paying careers. But can taking on student debt hurt your chances when applying for a home loan

In short: absolutely. But there’s plenty you can do about it. So let's break down how student loan debt can impact your home buying journey.

What is HECS-HELP? Australian student loans explained

A graduate leaps between rising coloured blocks against a cityscape.

The Higher Education Contribution Scheme and the Higher Education Loan Program (HECS-HELP, sometimes just shortened to HECS) is a government-backed lending scheme in Australia that loans eligible students money so they can attend university. 

Am I charged interest on my HECS debt?

Collage of someone holding a piggy bank on a pink background.

Good news: HECS-HELP student loans in Australia are completely interest free.

However, your outstanding loan amount is indexed every 1 July for the End of the Financial Year (EOFY). This means the Australian Taxation Office adjusts the value of the debt based on the Consumer Price Index (CPI). This keeps the true value of the loan accurate over the years and in line with the overall cost of living.

Thanks to inflation, HECS-HELP debt was indexed by 7% in 2023.

Does HECS-HELP debt affect how much I can borrow for a loan?

Collage of a uni graduate in a cap and gown thinking about piggy banks.

In Australia, a lender considers any outstanding HECS-HELP debt as part of your home loan application. This is because HECS-HELP counts as a debt liability. Here's how it works. 

Whenever you apply to borrow money, like a home loan, a prospective lender will evaluate your debt liabilities, income, and credit history to see how much they can safely lend you. The amount they can safely lend you is called your borrowing power (or borrowing capacity). 

Any financial obligations you have, such as regular payments and debts, affect your ability to afford loan repayments because they take up part of your monthly income. Ideally, you want as few liabilities as possible to have better chances of home loan approval.

Liabilities can include expenses such as:

The lender determines your home loan serviceability by comparing your income against these debts. If they drain too much of your income, the lender will restrict the loan size you can get. This way, the lender only loans you how much you can afford, within their risk tolerance.

Given that HECS repayments are tiered based on income, this is most likely to affect young home buyers, low-income buyers, and first home buyers the most. 

HECS-HELP home loan borrowing power example

For example, let’s imagine a couple with a combined income of $100,000, no dependents and no credit cards, and only $3000 in monthly living expenses. They approach a bank for a loan with the following specifications:

  • 6.00% p.a. variable interest rate.
  • 25 year term.

If one partner earns $55,000 and has $30,000 owing on their HECS debt, they will be required to pay around $1,100 per year to the ATO. Since this is money that cannot go towards a monthly mortgage repayment, the lender will add the HECS debt to a list of the couple’s expenses.

With this HECS debt, the couple would only be able to borrow $592,450. Without it, however, their borrowing power goes up to $606,678 (an increase of almost $15,000). You can see this in action with Mozo's borrowing calculator.

So if someone’s debt reality is any more complicated than this (and for most people, it absolutely is), they’d likely have to look for more budget-friendly properties.

Other ways student debts impacts your home loan

Paying off a student loan can also slow down how quickly you can save for a home loan deposit, and a home loan deposit has a huge impact on home loan costs.

For example, your employer by law has to withhold extra money from your salary to cover mandatory repayment contributions you must make against your HECS-HELP debt. This gives you less disposable income to save for a home loan deposit, which in most Australian states is now six figures

You could speed things up by buying with a smaller home loan deposit, but this has cost implications, too. Small deposits mean high loan-to-value ratios (LVRs), and higher LVRs typically pay higher interest rates. 

Do I have to declare HECS-HELP debt on my home loan application?

Woman reads her laptop. She's applying for a mortgage.

When applying for a home loan, you should always declare your outstanding HECS-HELP debt. Your lender will want to consider all your assets, debts, and liabilities – including student debt – when assessing your home loan application. 

Keep in mind it’s important to be honest and upfront throughout the mortgage application process. This will not only protect you from negative consequences like losing out on your home loan, ending up on a ‘blacklist’, or being charged with fraud, but also safeguards your financial future.

If you genuinely cannot afford repayments on the home loan size you want, then it’s better to avoid that long-term stress and risk in the first place. Honesty truly is the best policy when it comes to home loans.

How do I apply for a home loan with HECS-HELP student debt?

A student jumps between pillars against a city (this time in yellow).

While it might not seem as urgent as other forms of debt, paying off HECS-HELP student loans is a great way to get proactive about your finances and prepare them for a home loan. After all, any debt you can pay off lessens your financial drag and makes it easier to afford mortgage repayments. 

Aside from asking for a higher wage from your employer or supplementing your income with freelance hours or side-gigs, there are a few things you can do to improve your borrowing capacity.

  • Live within your means by cutting any unnecessary expenses. Banks will especially look at anything you’ve purchased in the three months prior to your application, so make sure your statements are lean, mean, and squeaky clean. Budgeting apps can help you track your living expenses. 
  • Save for a bigger deposit, since that decreases your application’s loan-to-value ratio (LVR) and therefore lessens the perceived risk in the eyes of the bank. Consider setting an air-tight budget to get started.
  • Consolidate all unnecessary debts, especially from credit cards. (We made a credit card debt calculator to help you).
  • Look at cheaper properties. It can suck to compromise a little on your dream home, but as they say: a bird in the hand. 
  • Use government grants. Depending on your circumstances, you may be eligible for one or more federal schemes to assist first home buyers. In particular, the First Home Owner Grant offers eligible borrowers a one-off lump sum, which varies in size depending on which state or territory you live in. This way, the government covers your shortfall and you’re able to get a crucial foot in the door – even with HECS debt.

Ready to buy your dream home? We’ve compiled a selection of low rate home loans on offer below.

Home loan comparisons on Mozo

Mozo may receive payment if you click the products below. We don’t compare the entire market, but you can search our database of 473 home loans.
Last updated 21 June 2024 Important disclosures and comparison rate warning*
  • Basic Home Loan

    • Owner Occupier
    • LVR<60%
    • Principal & Interest
    Interest rate
    6.14 % p.a.
    Variable
    Comparison rate
    6.16 % p.a.
    Initial monthly repayment
    $3,043
    Go to site

    Enjoy a low rate home loan with $0 application fee and $0 ongoing fees. Flexibility to split your loan and set different repayment types. Fee free redraw from your loan using online banking. Flexible ways to repay. 40% Deposit required.

  • Unloan Variable

    • Owner Occupier
    • LVR <80%
    Interest rate
    5.99 % p.a.
    Variable
    Comparison rate
    5.90 % p.a.
    Initial monthly repayment
    $2,995
    Go to site

    Built by CommBank, the Unloan is the first home loan with an increasing discount (conditions apply) for borrowers. No application or banking fees. No monthly account keeping or early exit fees. Apply online in minutes.

  • Offset Home Loan

    • Owner Occupier
    • LVR<60%
    • Principal & Interest
    Interest rate
    6.14 % p.a.
    Variable
    Comparison rate
    6.39 % p.a.
    Initial monthly repayment
    $3,043
    Go to site

    Ability to open up to 10 offset accounts per loan account. Fast online application. Linked Debit Mastercard® with fee-free access at ATMs across Australia. Package a credit card with your home loan and the annual card fee will be waived (T&Cs apply). 40% deposit required.

  • Unloan Variable

    • Owner Occupier
    • LVR <80%
    Interest rate
    5.99 % p.a.
    Variable
    Comparison rate
    5.90 % p.a.
    Initial monthly repayment
    $2,995
    Go to site

    Built by CommBank, the Unloan is the first home loan with an increasing discount (conditions apply) for borrowers. No application or banking fees. No monthly account keeping or early exit fees. Apply online in minutes.

  • Discount Variable Home Loan

    • Owner Occupier
    • LVR<70%
    Interest rate
    5.99 % p.a.
    Variable
    Comparison rate
    6.01 % p.a.
    Initial monthly repayment
    $2,995
    Go to site

    A low rate home loan for owner-occupiers packed with great features including unlimited extra repayments, free online redraw, no application or monthly admin fees. Rate will vary depending on LVR. Winner of a Mozo Experts Choice 2024 Low Cost Home Loan Award^

  • Variable Home Loan 90

    • Principal and Interest
    • LVR <90%
    Interest rate
    6.04 % p.a.
    Variable
    Comparison rate
    6.06 % p.a.
    Initial monthly repayment
    $3,011
    Go to site

    Affordable home loan rate for buyers or refinancers. No monthly or ongoing fees. Option to add an offset for 0.10%. Access to savings with unlimited redraws available. Minimum 10% deposit required.

  • Fixed Rate Loan

    • Owner Occupier
    • Principal & Interest
    • LVR <80%
    Interest rate
    6.09 % p.a.
    Fixed 3 years
    Comparison rate
    6.15 % p.a.
    Initial monthly repayment
    $3,027

    Additional repayments of up to $10K per fixed year. Interest rate discounts available. Waiver of $499 application fee when combined with an Orange Advantage Home Loan.

  • The Better Home Loan Special Offer

    • Owner Occupier
    • Principal & Interest
    • LVR<80%
    Interest rate
    6.14 % p.a.
    Variable
    Comparison rate
    6.14 % p.a.
    Initial monthly repayment
    $3,043
    Go to site

    Enjoy a variable rate home loan with a bunch of features from Police Credit Union. Make extra repayments at any time without penalty. No monthly, annual or upfront fees. Free online redraw. Minimum 20% deposit. Qualifying criteria applies. Minimum loan amount is 200K. For new customers only. Mozo Experts Choice Home Lender Credit Union of the Year 2023.

  • Basic Home Loan

    • Owner Occupier
    • LVR<60%
    • Principal & Interest
    Interest rate
    6.14 % p.a.
    Variable
    Comparison rate
    6.16 % p.a.
    Initial monthly repayment
    $3,043
    Go to site

    Enjoy a low rate home loan with $0 application fee and $0 ongoing fees. Flexibility to split your loan and set different repayment types. Fee free redraw from your loan using online banking. Flexible ways to repay. 40% Deposit required.

  • Mortgage Simplifier

    • LVR<80%
    • Owner Occupier
    • Principal & Interest
    Interest rate
    6.14 % p.a.
    Variable
    Comparison rate
    6.17 % p.a.
    Initial monthly repayment
    $3,043

    Get a competitive variable rate with ING’s Mortgage Simplifier. Free extra repayments, no monthly or annual fees. Freedom to make free extra repayments or redraws.

  • Offset Home Loan

    • Owner Occupier
    • LVR<60%
    • Principal & Interest
    Interest rate
    6.14 % p.a.
    Variable
    Comparison rate
    6.39 % p.a.
    Initial monthly repayment
    $3,043
    Go to site

    Ability to open up to 10 offset accounts per loan account. Fast online application. Linked Debit Mastercard® with fee-free access at ATMs across Australia. Package a credit card with your home loan and the annual card fee will be waived (T&Cs apply). 40% deposit required.

  • Basic Home Loan

    • Fixed
    • Owner Occupier
    • Principal & Interest
    • LVR<70%
    Interest rate
    6.25 % p.a.
    Fixed 3 years
    Comparison rate
    6.20 % p.a.
    Initial monthly repayment
    $3,079
    Go to site

    No upfront or ongoing fees. Free extra repayments and redraw facility. Option to earn Qantas points. Min 30% deposit required. Borrow up to $750,000.

  • Offset Home Loan

    • Fixed
    • Owner Occupier
    • Principal & Interest
    • LVR <70%
    Interest rate
    6.25 % p.a.
    Fixed 3 years
    Comparison rate
    6.42 % p.a.
    Initial monthly repayment
    $3,079
    Go to site

  • Fixed Rate

    • Owner Occupier
    • Principal & Interest
    • <80% LVR
    Interest rate
    6.59 % p.a.
    Fixed 3 years
    Comparison rate
    7.06 % p.a.
    Initial monthly repayment
    $3,190

    Enjoy up to $3000 cashback for eligible first home buyers and $2000 cashback for refinancers on eligible home loans with the ANZ Fixed Rate Home Loan. Get the security of repayment certainty with a competitive locked in rate. No ongoing fees to pay. Offset account on 1-year fixed loans ($10/month fee applies). Interest-only payments allowed.

image of houses

Need help with refinancing?

You might have questions that need personal answers. We’ve teamed up with the mortgage brokers at Lendi to get you the answers you need, and a home loan deal you deserve.

Learn more

* WARNING: This comparison rate applies only to the example or examples given. Different amounts and terms will result in different comparison rates. Costs such as redraw fees or early repayment fees, and cost savings such as fee waivers, are not included in the comparison rate but may influence the cost of the loan. The comparison rate displayed is for a secured loan with monthly principal and interest repayments for $150,000 over 25 years.

** Initial monthly repayment figures are estimates only, based on the advertised rate. You can change the loan amount and term in the input boxes at the top of this table. Rates, fees and charges and therefore the total cost of the loan may vary depending on your loan amount, loan term, and credit history. Actual repayments will depend on your individual circumstances and interest rate changes.

^See information about the Mozo Experts Choice Home Loan Awards

Mozo provides general product information. We don't consider your personal objectives, financial situation or needs and we aren't recommending any specific product to you. You should make your own decision after reading the PDS or offer documentation, or seeking independent advice.

While we pride ourselves on covering a wide range of products, we don't cover every product in the market. If you decide to apply for a product through our website, you will be dealing directly with the provider of that product and not with Mozo.