Borrowing Power
Does HECS debt affect your borrowing power in 2026?
13 min read · By Daniel Lagden · 23 August 2026
Yes. A HECS or HELP debt does not appear on your credit file, charges no interest in the ordinary sense, and has no minimum monthly payment on a statement. None of that stops it reducing how much you can borrow. It works through a side door: your compulsory repayment comes out of the income a lender is allowed to use, and a smaller assessable income means a smaller loan. In 2026 that mechanism changed in two separate ways, and most of the commentary about it has been half right at best.
Quick summary: the repayment system moved to a marginal calculation above a $67,000 threshold, which reduced most people's compulsory repayment and therefore helped their borrowing capacity. Separately, the prudential regulator stopped requiring banks to include HELP debt in the debt to income figure they report. That second change is about bank reporting, not about your affordability assessment. Your compulsory repayment still comes off your assessable income.
Why does a HELP debt behave differently to other debt?
Every other liability a lender assesses has a repayment attached to a balance. A car loan has a monthly instalment. A credit card has a limit that lenders treat as though it were fully drawn. A HELP debt has neither. It is not reported to credit bureaus, it does not affect your credit score, and it cannot be defaulted on in the way consumer credit can.
What it does have is a compulsory repayment determined by your income and collected through the tax system. Lenders treat that repayment as a permanent reduction in the income available to service a mortgage. The balance itself is close to irrelevant to the assessment. What matters is the repayment, and the repayment is driven by what you earn rather than by what you owe.
This is the counterintuitive part. Two applicants with identical incomes are affected identically, whether one owes $15,000 and the other owes $80,000. The balance only becomes relevant when it is small enough to be cleared, which is covered further down.
What changed with the repayment threshold in 2026?
From the 2025/26 income year the compulsory repayment threshold rose to $67,000, and repayments moved to a marginal basis. Under the old system, crossing the threshold meant a percentage applied to your entire income. Under the marginal system the rate applies only to income above the threshold, which is how income tax has always worked and is a considerably fairer outcome.
The practical effect is that most borrowers now have a smaller compulsory repayment than the old system produced, which genuinely improves serviceability. Someone earning just above the threshold went from a repayment calculated on everything they earn to one calculated on a small slice of it. That is a real gain in borrowing capacity, not an accounting quirk.
The initial marginal rate above the threshold is 15 cents in the dollar, with higher bands above that. Because the bands and the threshold are indexed and do change, check the current figures with the Australian Taxation Office rather than relying on any published table, including ours.
How much borrowing power does it actually cost?
The honest answer is that it depends on your income, and the effect is larger than most people assume because of how serviceability compounds. A compulsory repayment reduces your assessable income. That reduced figure then gets tested against a rate three percentage points above the actual rate. So every dollar of repayment removes more than a dollar of borrowing capacity.
| Step | Applicant without HELP | Applicant with HELP |
|---|---|---|
| Gross income | $110,000 | $110,000 |
| Compulsory HELP repayment | Nil | Deducted, based on income above $67,000 |
| Income the lender assesses | Higher | Lower by the repayment amount |
| Tested at buffered assessment rate | Same buffer applies | Same buffer, smaller income |
| Effect on maximum loan | Baseline | Reduced, by more than the repayment itself |
You will see figures quoted for how much capacity a HELP debt costs, sometimes in the tens of thousands of dollars. Treat all of them as indicative. The real number depends on your income, your other commitments, the lender's expense benchmarks and its policy on residual balances. The only figure that means anything is one calculated on your actual file.
Did the regulator not take HELP out of the calculation?
This is where most of the confusion lives, and it is worth being precise because the headlines were misleading. From late 2025 banks were no longer required to include HELP debt in the debt to income ratio they report to the prudential regulator. That is a change to a reporting standard.
| What it is | Did it change? | |
|---|---|---|
| Debt to income reporting | How a bank counts your loan against its own portfolio limits | Yes, HELP excluded |
| Serviceability assessment | Whether the bank thinks you can afford the repayments | No, repayment still deducted |
So the change is real and it does help, but only on one of the two tests you have to pass. If a headline told you HELP debt no longer affects your home loan, it was describing the reporting change and quietly ignoring the affordability one. Your compulsory repayment still reduces the income a lender assesses.
Does the six times income cap make this worse?
It can, and the interaction is worth understanding because the two constraints bite in different places. Most lenders now apply a debt to income ceiling of around six times gross income. That cap is calculated on gross income, which your HELP repayment does not reduce. Serviceability is calculated on assessable income, which it does.
The result is that a HELP debt pushes down your serviceability without changing your debt to income position. For most borrowers, that means serviceability becomes the binding constraint sooner than the cap does. Whether that matters depends on which test was closer to biting in the first place, which is why the two need modelling together rather than in isolation.
Should you pay it off before you apply?
Sometimes, and the answer turns on the size of the balance relative to your deposit rather than on whether debt is good or bad in the abstract.
| Situation | Generally | Why |
|---|---|---|
| Small balance, clearable from spare cash | Often worth it | Removes the repayment from the assessment entirely |
| Balance clearable within 12 months | Worth discussing | Guidance allows lenders to make exceptions; policy varies |
| Large balance, would consume your deposit | Usually not | A smaller deposit costs you more than the repayment does |
| Large balance, deposit unaffected | Model both | Depends on income and which test is binding |
The trap is spending your deposit to remove a repayment. A smaller deposit can push you over an LVR threshold, trigger mortgage insurance, and cost far more than the capacity you gained. This is a calculation, not a principle, and it should be done on your numbers before you move any money.
One timing point that catches people. Voluntary repayments do not remove the compulsory repayment for an income year that has already passed. If you are planning to clear a balance to improve an application, the sequencing matters, and it is worth confirming before you pay rather than after.
Does it matter which lender you use?
Yes, more than most borrowers expect. The broad approach is consistent across the market because the repayment is set by legislation, but the policy detail is not. Lenders differ on how they treat a balance close to being repaid, on whether they will discount a debt clearing within twelve months, and on the evidence they want to support that.
Those differences can move a maximum loan materially on an otherwise identical file. Checking policy before you apply is far more productive than lodging with the lender whose advertised rate looked best and discovering their policy was the least accommodating.
Which professions does this hit hardest?
The occupations that require a degree carry the largest balances, which means the effect concentrates in exactly the professions that otherwise look like strong borrowers. Doctors, nurses, teachers, engineers, lawyers, pharmacists and veterinarians typically finish study with substantial HELP debt and then enter careers with reliable income, which is a combination lenders like on every measure except this one.
There is a partial offset worth knowing about. Some lenders extend profession based mortgage insurance waivers to particular occupations, which can remove a large cost at higher loan to value ratios and more than compensate for the capacity a HELP debt takes away. Eligibility is specific and changes, so it is worth checking against your own role rather than assuming.
What should you actually do?
- Find out your current balance and your actual compulsory repayment, rather than estimating from your salary.
- Reduce or close undrawn credit card and overdraft limits, which cost you capacity on both tests and are easier to fix than a study debt.
- Have your position modelled with the HELP repayment included, so the number you plan around is the real one.
- If the balance is small, get the pay it off or keep it calculation done properly before you move any savings.
- Match the file to a lender whose policy on residual balances suits your position.
- If a mortgage insurance waiver might apply to your profession, check it, because it can outweigh the whole issue.
General information only, current as at August 2026. Repayment thresholds and rates are set by government and indexed, prudential settings change, and lender policy varies and is applied case by case. Confirm current thresholds with the Australian Taxation Office and your own position with us before acting. This is not credit or tax advice.
Run the numbers
Frequently asked questions
Does HECS show up on my credit file?
No. A HELP debt is not reported to credit bureaus and does not affect your credit score. It reduces borrowing capacity through the compulsory repayment being deducted from the income a lender assesses.
Is it true HECS no longer counts towards a home loan?
Only partly, and the headlines overstated it. Banks no longer include HELP debt in the debt to income figure they report to the regulator, but your compulsory repayment is still deducted when they assess whether you can afford the repayments.
How much borrowing power does HECS cost me?
It depends on your income, your other commitments and the lender. Because the reduced income is then tested at a buffered rate, each dollar of compulsory repayment removes more than a dollar of capacity. Only a calculation on your own file gives a meaningful figure.
Will paying off my HECS increase how much I can borrow?
It can, because clearing the balance removes the compulsory repayment from the assessment. Where the balance is large, using your deposit to clear it can trigger mortgage insurance and leave you worse off overall.
Does the size of my HECS balance matter?
Less than people expect. The assessment is driven by the compulsory repayment, which is set by your income rather than your balance. The balance matters mainly when it is small enough to clear.
Do all lenders treat HECS the same way?
The broad approach is consistent because the repayment is set by legislation, but policies differ on small residual balances and on debts clearing within twelve months, which can change your maximum loan.
I earn a high income. Does HECS still matter?
Yes, and often more in dollar terms, because the compulsory repayment rises with income. Professionals with large balances frequently find it is the single biggest constraint on their capacity.
Should I make voluntary repayments before applying?
Possibly, but the timing matters: a voluntary repayment does not remove the compulsory repayment for an income year that has already passed. Get the sequencing checked before you pay rather than after.
Find out what you can actually borrow
A HELP balance is one input among many, and its effect depends on your income, your other commitments and the lender assessing the file. The useful step is having your position modelled against the lenders whose policy suits it, rather than guessing from an online calculator.
Talk to us about your borrowing powerGeneral information only. This article does not take your personal circumstances into account and is not credit advice.
