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What a HECS/HELP debt means for your home loan application

A HECS debt can significantly reduce your income and serviceability potential. Find out how you can improve your chance of qualifying for a home loan.

If you’re a university graduate, it’s likely that you’ve accumulated a debt as part of the Higher Education Contribution Scheme (HECS) during your tertiary studies. Many students choose to defer payment of their tertiary education through this higher education loan program with the intention of paying the government back once they start working.

Your higher education debt may have been a non-issue during your course when you were darting in and out of lectures, but you have to face the music once you enter the workforce and reach a certain income threshold.

In essence, a HECS/HELP debt is treated like any other liability during a home loan application. Because it reduces your income, your serviceability potential and borrowing capacity is lowered, which increases your risk profile.

However, there are steps you can take to raise your chance of qualifying for finance.

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How can a HECS debt affect my chance of qualifying for a loan?

When you apply for a home loan, the lender will ask you to disclose information about your liabilities, including the number of dependents that you have, poor credit ratings as well as any other debts. This is where your HECS/HELP debt comes in.

If you’ve decided to defer part or all of your HECS/HELP payment, then you normally aren’t required to start repaying the debt until your annual taxable income is $51,309 or greater.

Once you reach this threshold, your employer will withhold 4% of your taxable income, which will be directed towards your HECS/HELP debt. The amount of withheld salary will increase once you start earning $77,248 or more.

Data from the Australian Scholarship Group (ASG) indicates that an average four-year bachelor degree ranges from $18,000 and $30,000, depending on the institution. This is a hefty debt, which can reduce your home loan serviceability potential.

As a result, the lender will review this debt carefully (just like other personal liabilities such as credit cards or number of dependents) when deciding whether or not you’re in a sound financial position to repay the loan.

How can a HECS debt affect my borrowing power?

As stated above, HECS debt payments are withheld from your taxable income starting at a rate of 4% once you hit the annual taxable income threshold $51,309, and rising to a maximum of 8% once your income reaches $77,248 or more.

Because HECS debt effectively reduces your income, it also reduces your borrowing power. And the amount by which it reduces your borrowing power can be significant. Take a look at the figures below:

Screen Shot 2016-07-12 at 4.39.03 PM
As you can see from finder.com.au's Borrowing Power Calculator, an income of $100,000 with no other debts would allow you to borrow approximately $664,000.

Now if HECS debt were to effectively reduce that income by 8%, it's clear below how borrowing power would be impacted.

Screen Shot 2016-07-12 at 4.45.20 PM

As you can see, borrowing power has been reduced by $56,000.

Obviously, the example above is a slight simplification. Different lenders may have different criteria by which they assess HECS debt, and its impact on your borrowing power will vary depending on your income and the size of your HECS debt. However, regardless of how lenders choose to treat it, HECS debt will have an impact on your borrowing power.

Should I pay off my HECS debt?

HECS debt in general is an inexpensive debt, as it doesn't accrue interest but is instead indexed against inflation. Always seek expert advice, but in general, unless you believe your HECS debt will disqualify you for a home loan or drastically reduce your borrowing power, it's usually more effective to devote extra funds toward paying off higher interest debt such as credit cards, car loans or personal loans.


How can I improve my chance of qualifying?

Having a HECS/HELP debt can negatively affect your ability to qualify for a loan, so here are some ways you can improve your chance of qualifying:

  • Request credit file. Before applying for a home loan, you should order a copy of your credit file to understand your financial position. Reviewing your credit file can help you understand how you will be perceived as a borrower and whether you need to take any steps to improve your credit status.
  • Reduce existing debt. If you have several debts such as personal loans or credit cards, you may want to consider consolidating them to benefit from a lower interest rate. However, be careful about combining short-term debt with long-term debt due to the variation in loan terms. For instance, if you took out a $10,000 personal loan at 14.5% interest over five years, you would have monthly repayments of $235 and total interest payable of $4,117. However, if you decided to consolidate this debt into your mortgage over 30 years (even at an average interest rate of 4.5%), the total interest payable on this portion of the loan would be significantly higher, as it’s extended over a longer term.
  • Evidence of savings. As a HECS/HELP debt greatly reduces your income and serviceability potential, you should be proactive about demonstrating that you have a good savings record. This can be done by making regular deposits into a high-interest savings account, as it shows the lender that you have financial discipline.
  • Speak to a broker. A licensed mortgage broker can help you understand your home loan options and your borrowing capacity. Mortgage brokers have expert knowledge of the home loan industry and can help you find a specialist lender that may be more likely to approve your application despite your HECS/HELP debt. A broker can also help you complete the paperwork and negotiate a competitive rate on your behalf.
  • Be candid. When you approach a broker or lender, you need to be honest about your financial position. This means you need to disclose all details regarding your assets and liabilities, including your HECS/HELP debt. If you omit this from conversations, you risk applying for the wrong home loan product, defaulting on your home loan or potentially experiencing mortgage stress.
  • Be conservative. It’s important to be conservative when estimating your income, assets and liabilities. For instance, don’t include superannuation in your base salary, and ensure that your property has been recently and independently valued. Don’t overlook expenses such as childcare costs.
  • Don't overapply. Be selective about the home loans you apply for. Each time you apply for a home loan, your lender will review your credit rating. When this happens, it shows up on your credit file. As the lender cannot see the outcome of previous enquiries on your credit file, it may be assumed that you’ve been rejected for several home loan applications. This is a red flag in the lender’s point of view. Thus, applying for several loans at once can harm your ability to qualify for a loan.

Compare loans or speak to a broker about your options

Rates last updated June 25th, 2018
$
Loan purpose
Offset account
Loan type
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Name Product Interest Rate (p.a.) Comp Rate^ (p.a.) Application Fee Ongoing Fees Max LVR Monthly Payment Short Description
3.69%
3.69%
$0
$0 p.a.
80%
Get $1,000 cash into a USaver account when you apply for a loan of $200,000 or more (new or refinance). Terms and conditions apply. Enjoy flexible repayments, a redraw facility and the ability to split your loan. Plus, pay no application or ongoing fees.
3.64%
3.66%
$0
$0 p.a.
80%
Pay no ongoing fees and enjoy a flexible repayment schedule, including the ability to make unlimited additional repayments without penalty.
3.69%
3.69%
$0
$0 p.a.
70%
Pay no application or ongoing fees and get a flexible loan with the ability to split up to 6 times.
3.69%
4.11%
$0
$395 p.a.
80%
Save on interest with a 100% offset account and save on other ME products with this package loan.
3.64%
3.67%
$0
$0 p.a.
80%
This loan offers a competitive variable rate and a 100% offset account to help save you on interest repayments.
3.52%
3.53%
$0
$0 p.a.
80%
Go from application to approval in as little as 20 minutes with a variable rate loan from this innovative online lender. Add a 100% offset account for $10 a month.
3.49%
4.49%
$0
$395 p.a.
90%
Loans over $150k get a discount off an already low fixed rate. Available for NSW, Qld and ACT residents only.
3.89%
4.88%
$0
$395 p.a.
95%
Low deposit package loan with a range of discounts. Earn up to 500,000 Velocity Points to spend on flights, hotels and more.
3.69%
3.70%
$0
$0 p.a.
90%
Package your loan and get an interest rate discount, a 100% offset account and help from an HSBC relationship manager.
3.72%
3.74%
$0
$0 p.a.
80%
Save on interest by taking advantage of a 100% offset account along with no ongoing fees or application fees.
3.73%
3.76%
$0
$0 p.a.
80%
This basic loan offers discounts for higher borrowing amounts and carries no ongoing fees.
3.64%
3.67%
$0
$0 p.a.
80%
A mortgage with a competitive variable rate, limited fees and plenty of flexibility.
3.79%
3.79%
$0
$0 p.a.
80%
Pay no application and ongoing fees with Macquarie Bank Basic Home Loan.
3.84%
3.87%
$0
$0 p.a.
90%
Save on interest with a free 100% offset account and buy your property with just a 10% deposit.
3.49%
3.52%
$500
$0 p.a.
95%
This mortgage combines a very sharp interest rate with a 100% offset account and it's available with a 5% deposit.
3.54%
3.58%
$0
$0 p.a.
80%
Eligible borrowers can get $900 cashback on this loan with a 100% offset account and a redraw facility.
3.99%
4.85%
$0
$395 p.a.
95%
Competitive fixed rate package loan. For a limited time you can earn Velocity Points to spend on hotels and flights.
3.65%
3.66%
$0
$0 p.a.
80%
This special rate mortgage has no ongoing fees and offers flexible repayments. Save $595 in establishment fees before 30 June.
3.68%
3.83%
$0
$10 monthly ($120 p.a.)
80%
Get a 100% offset account to save on interest charges, and pay no application fee.
3.68%
4.00%
$0
$299 p.a.
80%
Get a 100% offset account and rate discounts for higher borrowing amounts.
3.64%
3.69%
$600
$0 p.a.
80%
A competitive variable rate for borrowers with a 20% deposit or more. Guarantor option available.
3.69%
3.74%
$600
$0 p.a.
80%
A low rate variable home loan offer with no monthly fees or application fee charge.
3.62%
3.62%
$0
$0 p.a.
95%
A low deposit mortgage with a competitive rate and plenty of flexibility. QLD residents only.
3.62%
3.62%
$0
$0 p.a.
80%
Pay no application or ongoing fees and get access to a redraw facility and flexible repayment schedule. Get $1,000 cash into a USaver account when you apply for a loan of $200,000 or more. Terms and conditions apply.
3.64%
3.84%
$0
$0 p.a.
70%
Enjoy all the benefits of the Basic Home Loan and take advantage of an offset account.
3.96%
3.98%
$0
$0 p.a.
90%
For a limited time, pay no application or settlement fees. You can also take advantage of a free redraw facility.
3.68%
4.00%
$0
$299 p.a.
80%
Get a 100% offset account and rate discounts for higher borrowing amounts.
3.74%
3.74%
$0
$0 p.a.
110%
Pay no deposit or LMI and get a discounted rate with this family pledge loan. Requires a family member to act as guarantor. NSW, Qld and ACT only.
3.73%
3.76%
$0
$0 p.a.
80%
This basic loan offers discounts for higher borrowing amounts and carries no ongoing fees.
3.70%
4.13%
$0
$395 p.a.
90%
Package your loan with an eligible credit card for discounts on rates and fees, and get a 100% offset account.
3.64%
4.03%
$0
$349 p.a.
90%
Package your loan with other AMP products and save on rates and fees.
3.77%
3.81%
$200
$0 p.a.
95%
A simplified mortgage with a low interest rate and a redraw facility.
3.97%
3.99%
$0
$0 p.a.
80%
Package your owner occupied loan with investment loan and receive a discounted investment rate. 100% offset account included.
3.64%
3.96%
$0
$299 p.a.
80%
Get a fully-featured loan with a 100% offset account and discounts for higher borrowing amounts.
3.68%
3.69%
$0
$0 p.a.
95%
This variable rate loan offers flexible repayments and a redraw facility. Available with a 5% deposit.
3.69%
3.94%
$0
$248 p.a.
70%
Get a sharp rate and a 100% offset account. Borrowers must have a 30% deposit.
3.59%
3.99%
$600
$395 p.a.
95%
Get interest rate discounts and waived fees on this package loan with a 100% offset account.
3.68%
3.69%
$0
$0 p.a.
90%
Get one free online redraw per month and pay no ongoing fees. Application fees are waived for loans above $150,000.
3.87%
3.87%
$0
$10 monthly ($120 p.a.)
90%
Get Virgin Velocity Points at settlement, monthly and every three years, plus the option to make up to $10,000 a year in extra repayments.
4.09%
4.11%
$0
$0 p.a.
80%
This variable rate loan keeps the features simple and fees low. This loan is offered by a 100% online lender.
3.69%
4.04%
$0
$350 p.a.
95%
A competitive rate with no application fee.
3.83%
4.49%
$0
$299 p.a.
95%
Owner-occupiers can enjoy a discounted fixed rate, a rate lock feature and the ability to make additional repayments.
3.99%
3.74%
$0
$0 p.a.
90%
2 years fixed interest terms with no application fee or ongoing fees, loans.com.au has won a range of awards for their home loans.
3.79%
3.79%
$0
$0 p.a.
80%
Get a 100% offset account and pay no application or ongoing fees on this special variable rate for owner-occupiers.
3.89%
3.92%
$0
$0 p.a.
80%
A low-fee line of credit loan from an online lender. Unlock the equity in your home and make interest-only repayments with a competitive rate.
3.79%
3.83%
$600
$0 p.a.
80%
A low interest rate loan with limited fees and a redraw facility. Principal and interest repayments only.
4.09%
4.12%
$0
$0 p.a.
90%
Access a fee-free offset account and a special interest rate for investors.
3.78%
3.78%
$0
$0 p.a.
80%
Pay no application or ongoing fees and get access to a free redraw facility with this innovative online lender.
3.89%
3.89%
$0
$0 p.a.
70%
Investors with a 30% deposit can get this low rate loan to fund their property portfolio.
3.99%
5.17%
$600
$0 p.a.
90%
Competitive rates for fixed for 3 years with redraw facility.
3.90%
4.78%
$600
$0 p.a.
95%
A competitive fixed rate mortgage with split facilities and extra repayments. You can get this loan with a 5% deposit.
3.74%
3.74%
$0
$0 p.a.
90%
New customers can get a discounted variable rate and a fee-free redraw facility. NSW, QLD and ACT residents only.
4.09%
4.12%
$0
$0 p.a.
95%
Buy a home with just a 5% deposit and get flexible repayment options and a redraw facility.
3.59%
4.14%
$395
$0 p.a.
80%
A one year fixed rate offer with no ongoing bank fees.
4.14%
4.14%
$0
$0 p.a.
80%
Investors get a 100% offset account and pay no application or ongoing fees on this loan from an innovative online lender.
3.99%
4.62%
$395
$0 p.a.
80%
Investors can enjoy flexible repayments and an easy application process with this pioneering online lender.
3.99%
4.86%
$0
$0 p.a.
80%
Access a fee-free 100% offset account and pay no application or ongoing fees.
3.74%
4.01%
$395
$0 p.a.
80%
A competitive 3 year fixed rate with no ongoing bank fees.
3.64%
3.64%
$0
$0 p.a.
70%
Get a discount for keeping your LVR at 70% or below with this innovative online lender.
3.85%
4.05%
$0
$350 p.a.
95%
This high LVR fixed rate loan allows you to borrow up to 95% of the value of the property you're buying.
3.99%
3.99%
$0
$0 p.a.
80%
Get a discounted, low-fee investor loan from a convenient online lender. 20% deposit required. Get $1,000 cash into a USaver account when you apply for a loan of $200,000 or more (new or refinance). Terms and conditions apply.
3.69%
4.47%
$0
$395 p.a.
90%
A fixed rate loan with a 100% offset account and the option to make additional repayments. Loans over $150k receive a discounted rate. NSW, QLD and ACT residents only.
3.85%
4.82%
$600
$35 monthly ($420 p.a.)
90%
Make up to $10,000 in extra repayments per year and take advantage of a flexible repayment schedule.
3.69%
3.70%
$0
$0 p.a.
70%
Keep your LVR at 70% or below and enjoy a special discounted rate. Also, pay no application or ongoing fees.
3.99%
4.03%
$0
$0 p.a.
95%
Buy a home with just a 5% deposit and pay no application or ongoing fees.
3.89%
4.96%
$0
$395 p.a.
95%
Switch to this loan and can get $1,500 cashback. Conditions apply. Package your home loan with a Qantas rewards earning Amplify credit card.
3.89%
4.97%
$0
$395 p.a.
95%
Get discounts on a range of Commonwealth Bank products and enjoy the option of fee-free extra repayments during the fixed term.
3.64%
3.65%
$500
$0 p.a.
95%
Family pledge option available. Get a special discount off Bank of Melbourne's basic variable rate.

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Credit services for Aussie Select, Aussie IQ and Aussie Optimizer products are provided by AHL Investments Pty Ltd ACN 105 265 861 Australian Credit Licence 246786 ("Aussie"), and its appointed credit representatives. Credit for Aussie Select products is provided by Residential Mortgage Group Pty Ltd ACN 152 378 133 Australian Credit Licence 414133 (“RMG”). RMG is a wholly-owned subsidiary of the Commonwealth Bank of Australia ABN 48 123 123 124 AFSL and Australian Credit Licence 234945. Credit for Aussie Optimizer products is provided by Perpetual Limited ABN 86 000 431 827 (Lender). Credit for Aussie IQ is provided by Macquarie Bank Limited ABN 46 008 583 542 AFSL and Australian Credit Licence 237502. Home loans issued by the Lender are serviced by Macquarie Securitisation Limited ABN 16 003 297 336, Australian Credit Licence 237863 (MSL).

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Belinda Punshon

Belinda is a journalist here at finder.com.au. Specialising in the home loans and property sections, she is passionate about helping Australians improve their financial wellbeing.

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