Looking For A Home Loan? Your Existing HECS Debt Might Be An Issue…

Looking For A Home Loan? Your Existing HECS Debt Might Be An Issue…


Did you know that the government assistance that many people access to pay for their tertiary education can impact the amount of money you may be able to borrow for a home loan?

The Higher Education Contribution Scheme (HECS) and Higher Education Loan Program (HELP) has allowed thousands of students to pursue higher education. While repayment of the debt is often something that may not be considered a high priority for fresh graduates, it could impact your borrowing power.

When you ask a bank for a loan to purchase a home, it runs what is called a serviceability test to calculate the level of your income in relation to your current debts and liabilities. Like personal loans, car finance, credit cards or dependent children, a HELP or HECS loan is treated the same way as any other liability.

What Does This Mean For Your Loan?

  • 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.

If your HECS/HELP debt is substantial and included with multiple other loans (e.g. personal car loan, credit card debt, etc), this could create an issue with getting approval for the loan amount requested.

How Can I Minimise My HECS/HELP Debt?

You don’t have to start paying your HECS/HELP debt until you have reached a certain income threshold.

At that point, your rate of repayment will also be set at a fixed point (and you won’t have to pay interest on the debt) by the Australian Taxation Office (ATO), which will withhold a part of your yearly income for the repayments. Your debt will also be adjusted on 1 June every year to account for inflation.

Your HECS/HELP Repayment Income is different from your taxable income. It takes into consideration:

  • Your total income for the financial year
  • Your total net investment losses
  • Any fringe benefits
  • Super contributions
  • Any exempt foreign employment income in the past financial year

There are two ways to pay off your HECS debt. While many people pay back their HECS through their employer as a compulsory payment, some may consider paying it off faster with voluntary HECS debt repayments.

How 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.
  • Afterpay and similar providers used can also be viewed negatively, so ensure that your spending reflects that you are able to live within your means.
  • 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.

It depends on your personal circumstances as to how your borrowing power will be affected by existing debts, as not every situation will be exactly the same.

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If you believe the matters discussed above are relevant to your business, please contact Darren Smith of our office to discuss further.


Darren is a Chartered Accountant with extensive experience, including working in the big 4 and medium sized firms before becoming a partner of a city based firm in 2000.

He has gained much experience and has extensive knowledge in providing business and taxation advice, superannuation planning, negotiation of sales and acquisitions of businesses and property development. His client base covers a wide range of industry groups.

Darren works with business owners to grow their businesses and create personal wealth within and outside of their business.


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