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

Rates and Fees verified correct on April 24th, 2017

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.

university graduate

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 and tutorials, 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.

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 generally 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

$
Loan purpose
Offset account
Loan type
Your filter criteria do not match any product
Interest Rate (p.a.) Comp Rate^ (p.a.) Application Fee Ongoing Fees Max LVR Monthly Payment
NAB Choice Package Home Loan - 2 Year Fixed (Owner Occupier)
A fixed rate package loan with flexible repayments options. NAB Rewards Points offer available, terms and conditions apply.
3.98% 4.97% $0 $395 p.a. 95% Go to site More info
HSBC Home Value Loan - Resident Owner Occupier only
Enjoy the low variable rate with $0 ongoing fee and borrow up to 90% LVR.
3.75% 3.77% $0 $0 p.a. 90% Go to site More info
3.74% 3.74% $0 $0 p.a. 80% Go to site More info
IMB Budget Home Loan - LVR <=90% (Owner Occupier)
A competitive budget rate without any unwanted bells and whistles.
3.97% 4.02% $445 $0 p.a. 90% Go to site More info
CUA Fresh Start Basic Variable Home Loan - Owner Occupier
A basic mortgage with flexible repayments options.
3.99% 4.04% $795 $0 p.a. 90% Go to site More info
Australian Unity Kick Starter Home Loan
$0 ongoing service fees, maximum 80% LVR and a linked transaction account.
3.84% 3.87% $600 $0 p.a. 80% Go to site More info
Newcastle Permanent Building Society Premium Plus Package Home Loan - New Customer Offer ($150,000+ Owner Occupier, P&I)
Apply for a new owner occupier loan or refinance from another lender and receive this discounted rate.
3.94% 4.32% $0 $395 p.a. 95% Go to site More info
Greater Bank Great Rate Discount Variable with Family Pledge Home Loan - Up to 110% LVR
Discounted rate available with family pledge loans. Family pledge loans require no LMI and no deposit. NSW, Qld and ACT only.
3.89% 3.89% $0 $0 p.a. 110% Go to site More info
QT Mutual Bank Mortgage Saver Home Loan
A low rate home loan with no application or ongoing fees.
3.88% 3.88% $0 $0 p.a. 95% Go to site More info
Bank Australia Basic Home Loan - Variable (Owner Occupier)
A competitive variable that allows borrowers to borrow a minimum of $100,000 with a $0 ongoing fee.
3.86% 3.90% $595 $0 p.a. 80% Go to site More info
Aussie Optimizer Variable Rate - LVR <= 80% (Owner Occupier + P&I)
No application or ongoing fees and fee free extra repayments.
3.86% 3.87% $0 $0 p.a. 80% Go to site More info
3.92% 4.35% $0 $395 p.a. 80% Go to site More info
Heritage Bank Discount Variable Home Loan - Special Rate Offer (Owner Occupier) New Customers Only
A low rate variable home loan offer with no monthly fees or application fee charge.
3.89% 3.91% $0 $0 p.a. 95% Go to site More info
3.94% 4.41% $0 $395 p.a. 90% Go to site More info
IMB Accelerator Home Loan  - LVR <=80% $300k+ (Owner Occupier)
A two year discounted rate which reverts to an ongoing life of loan discount afterwards.
3.89% 4.59% $445 $0 p.a. 80% Go to site More info
Bank Australia Premium Home Loan Package - 2 Year Fixed (Owner Occupier) LVR < 80%
A discounted 2 year fixed rate loan with high maximum LVR and no application fee.
3.94% 4.35% $595 $350 p.a. 80% Go to site More info
Bankwest Equaliser Home Loan - $200k+ LVR ≤80% (Owner Occupier, new customers only)
Enjoy a variable 3 year introductory rate with Bankwest Equaliser Home Loan.
3.95% 4.25% $0 $0 p.a. 80% Go to site More info
Bank Australia Premium Home Loan Package - LVR<=80% $700k + (Owner Occupier)
Enjoy the discounted interest rate with redraw facility and no ongoing fees.
3.82% 4.17% $595 $350 p.a. 80% Go to site More info
Newcastle Permanent Building Society Fixed Rate Home Loan - 2 Year Fixed (Owner Occupier Special Rate, P&I)
A limited time 2 year fixed rate for owner occupiers. Conditions apply.
3.89% 4.87% $0 $0 p.a. 95% Go to site More info
CUA Fixed Rate Home Loan - 2 Year Fixed (Owner Occupier)
A fixed home loan with no ongoing fees and flexible repayments options.
3.84% 4.71% $600 $0 p.a. 95% Go to site More info
Newcastle Permanent Building Society Fixed Rate Home Loan - 3 Year Fixed (Owner Occupier Special Rate, P&I)
A limited time fixed rate home loan with extra repayment abilities. Conditions apply.
3.99% 4.80% $0 $0 p.a. 95% Go to site More info
ME Flexible Home Loan Fixed - 3 Year Fixed Rate (Owner Occupier)
A competitive 3 year fixed rate with a redraw facility and split loan options, plus no application fee.
4.19% 4.82% $0 $0 p.a. 95% Go to site More info
Newcastle Permanent Building Society Fixed Rate Home Loan - 2 Years Fixed (Standard Rate, P&I)
Enjoy a low interest rate and borrow up to 95% (with LMI) of your home value.
4.59% 5.00% $0 $0 p.a. 95% Go to site More info
Australian Unity Health, Wealth and Happiness Package - (Owner Occupier)
Get a 0.60% discount on your rate, a 100% offset account and no ongoing fees.
4.05% 4.08% $600 $0 p.a. 90% Go to site More info
NAB Base Variable Rate Home Loan - Owner Occupier (P&I)
A competitive no frills home loan with no application fees for a limited time. NAB Rewards Points offer available, terms and conditions apply.
4.17% 4.21% $600 $0 p.a. 95% Go to site More info
Australian Unity Wealth Builder Investor Package Home Loan - Variable
An investment loan with no ongoing fees and borrow up to 90% LVR.
4.19% 4.22% $600 $0 p.a. 90% Go to site More info
NAB Choice Package Variable Rate - $250k to $749,999 P&I (Owner Occupier)
A packaged low rate interest offer from NAB. Includes mortgage offset.
4.47% 4.86% $0 $395 p.a. 95% Go to site More info
Newcastle Permanent Building Society Fixed Rate Home Loan - 1 Year Fixed (Standard Rate, P&I)
Get a short term fixed rate for that investment property with no application or ongoing fees.
4.59% 5.05% $0 $0 p.a. 95% Go to site More info
IMB Essential Home Loan - LVR <=90% (Owner Occupier)
Access to redraw facility and offset account without the annual fee.
4.19% 4.19% $0 $0 p.a. 90% Go to site More info
NAB Choice Package Home Loan - 5 Year Fixed (Owner Occupier)
A competitive loan with flexible features. NAB Rewards Points offer available, terms and conditions apply.
4.59% 5.05% $0 $395 p.a. 95% Go to site More info
ANZ Simplicity PLUS Home Loan - Special Offer (Owner Occupier)
Enjoy a home loan with no application fee or ongoing fee.
4.03% 4.07% $0 $0 p.a. 95% Enquire now
3.88% 3.89% $600 $0 p.a. 90% Enquire now
St.George Basic Home Loan - Promotional Rate (Owner Occupier, P&I)
A no frills loan with a competitive rate and a maximum LVR of 95%.
3.98% 3.99% $0 $0 p.a. 95% Enquire now
Commonwealth Bank Wealth Package Fixed Home Loan - 2 Year Fixed (Owner Occupier) P&I
A package home loan with fee free extra repayments available during the fixed term.
3.99% 4.99% $0 $395 p.a. 95% Enquire now
St.George Fixed Rate Advantage Package -  2 Year Fixed Rate (Owner Occupier, P&I)
A discounted package rate for owner occupiers with the ability to package a Qantas rewards earning Amplify credit card. $1,500 cash back available for refinancers, conditions apply.
3.99% 5.04% $0 $395 p.a. 95% Enquire now
Westpac Fixed Options Home Loan Premier Advantage Package - 2 Years, P&I
A low interest rate home loan with a low service fee.
3.99% 5.10% $0 $395 p.a. 95% Enquire now
NAB Choice Package Fixed Rate Home Loan - 2 Year Fixed (Owner Occupier) First Home Buyer Special
A special rate for first home buyers buying residential property and borrowing over $150K. Conditions apply.
3.69% 4.92% $0 $395 p.a. 95% Enquire now
Virgin Reward Me Variable Home Loan - LVR <= 80% ($750k+ Owner Occupier)
A variable rate home loan with competitive interest rate and flexible product features that can earn Velocity points.
3.79% 3.92% $0 $10 monthly ($120 p.a.) 80% Enquire now

Enter your details to speak to a broker from Aussie about a home loan

Are you an Australian Citizen or permanent resident?

Applications are subject to approval. Conditions, fees and charges apply.

Credit services for Aussie Select and Aussie Optimizer products are provided by AHL Investments Pty Ltd ACN 105 265 861 ("Aussie") and its appointed credit representatives, Australian Credit Licence 246786. Credit for Aussie Select products is provided by Residential Mortgage Group Pty Ltd ACN 152 378 133, Australian Credit Licence 414133. Credit for Aussie Optimizer products is provided by Perpetual Ltd ACN 000 431 827.

Aussie is a trade mark of AHL Investments Pty Ltd. Aussie is a partly-owned subsidiary of the Commonwealth Bank of Australia ABN 48 123 123 124 AFSL and Australian Credit Licence 234945. © 2017 AHL Investments Pty Ltd ABN 27 105 265 861 Australian Credit Licence 246786.

By submitting this form, you agree to the finder.com.au privacy policy and the Aussie privacy policy.

Aussie Home Loans Logo

Aussie can save you time and effort by helping you research, organise and apply for your home loan. They compare thousands of home loans to help find the right deal for you. Fill out the form on the left and an Aussie Mortgage Broker will meet you at a time of your choosing to discuss your needs and help you find the right home loan.

Aussie Home Loans Lender Logos

Back to top

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.

Was this content helpful to you? No  Yes

Related Posts

HSBC Home Value Loan - Resident Owner Occupier only

Enjoy the low variable rate with $0 ongoing fee and borrow up to 90% LVR.

Newcastle Permanent Building Society Premium Plus Package Home Loan - New Customer Offer ($150,000+ Owner Occupier, P&I)

Apply for a new owner occupier loan or refinance from another lender and receive this discounted rate.

Ask a Question

You are about to post a question on finder.com.au

  • Do not enter personal information (eg. surname, phone number, bank details) as your question will be made public
  • finder.com.au is a financial comparison and information service, not a bank or product provider
  • We cannot provide you with personal advice or recommendations
  • Your answer might already be waiting – check previous questions below to see if yours has already been asked

Disclaimer: At finder.com.au we provide factual information and general advice. Before you make any decision about a product read the Product Disclosure Statement and consider your own circumstances to decide whether it is appropriate for you.
Rates and fees mentioned in comments are correct at the time of publication.
By submitting this question you agree to the finder.com.au privacy policy, receive follow up emails related to finder.com.au and to create a user account where further replies to your questions will be sent.

Ask a question
feedback