Does HECS Debts Affect Your Home Loan

Worried about how student debt may impact you buying your first home?

Article published 01 November 2021

What is HECS?

HECS or “HECS-HELP” is a student loan program offered by the Australian Government to pay for your studies when attending university or an approved higher education provider. If you meet the eligibility requirements, your HECS loan can be used to pay your tuition fees, but will not cover other costs such as accommodation, laptops or textbooks. 

Are HECS and HELP the same thing?

In 2005, the Australian Government announced a reform to higher education, this included the introduction of the Higher Loan Education Program (HELP). During this time the existing HECS (Higher Education Contribution Scheme) program was absorbed as a type of loan within HELP. 

As of 2021, the following higher education loans are available within the HELP scheme:

  • HECS-HELP: Loan contribution for tuition at a Commonwealth-supported university or approved higher education provider. 
  • FEE-HELP: Loan contribution to full fee-paying students to pay their tuition fees at a private provider or for postgraduate courses not offered by Commonwealth-supported institutions. 
  • OS-HELP: Used to assist Commonwealth-supported students undertaking part of their studies overseas. 
  • SA-HELP: Provides eligible students with a loan to pay for all or part of their student services and amenities fee. 
  • VET Student loans: Provides a loan to eligible students enrolled in higher level VET courses to pay their fees. 

While there are some differences between each of these HELP type loans, they are typically to be viewed the same by your lender. 

Do I get charged interest on HECS?

No, you do not get charged interest on HECS, however your HECS debt is annually indexed against inflation, which is different to interest. So while they both cause the total number to increase, indexation just means your HECS keeps the same value in line with the Consumer Price Index (CPI),1 whereas interest is the cost of a loan and how the bank makes profit as well. 

The HECS indexation rate is calculated each year after the March CPI is released and is based on figures collected by the ABS over the previous two years. Here is the current and previous years indexation rates: 

HECS indexation rate 2017-21

Year

Rate

2021

0.6%

2020

1.8%

2019

1.8%

2018

1.9%

2017

1.5%

How does HECS debt affect your home loan application?

When applying for a home loan, it’s important to understand that your HECS debt will need to be considered and this may have an affect on your home loan application. 

During the assessment stage of your application, your lender will treat your student debt the same way they treat other forms of debt you hold, such as car loans, personal loans, and credit cards. This is a means of understanding how your HECS debt impacts your overall financial situation and therefore your ability to service a home loan. 

Another way your HECS debt can impact your home loan application is when calculating your debt-to-income (DTI) ratio. Your DTI ratio is essentially your total debts and liabilities divided by your gross income and is used by lenders to understand your full debt exposure. Lenders are able to use your DTI ratio to make a calculated decision on your ability to make home loan repayments without resulting in financial hardship. As some lenders may have strict DTI limits when it comes to home loan applications, your HECS debt can prove to be a determining factor in being approved for a higher loan amount.

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Do lenders look at your HECS debt?

Yes, lenders do look at your HECS debt when applying for a home loan, as your HECS debt will have effects on your income. 

While your HECS debt may not seem like other debts you can obtain, such as credit cards and personal loans, repayments on your student loan will still need to be made, causing an impact on your income and loan serviceability. Depending on the lender, your HECS debt is likely to be treated the same as an additional loan you hold and is therefore considered when determining your borrowing capacity. 

The criteria that lenders use your HECS to calculate your borrowing capacity can vary depending on the lender. Speak to your local Mortgage Choice broker to get a full understanding of your loan serviceability and how your HECS debt will be considered by lenders.

It’s important to understand that you will begin to repay your HECS debt once you reach a certain income threshold and your repayment will automatically be deducted from your taxable income. The rate of your repayment will vary depending on your income and the thresholds are reviewed annually. 

HECS 2021-22 repayment income thresholds and rates

Repayment income (RI)

Repayment rate

Below $47,014

Nil

$47,014 – $54,282

1.00%

$54,283 – $57,538

2.00%

$57,539 – $60,991

2.50%

$60,992 – $64,651

3.00%

$64,652 – $68,529

3.50%

$68,530 – $72,641

4.00%

$72,642 – $77,001

4.50%

$77,002 – $81,620

5.00%

$81,621 – $86,518

5.50%

$86,519 – $91,709

6.00%

$91,710 – $97,212

6.50%

$97,213 – $103,045

7.00%

$103,046 – $109,227

7.50%

$109,228 – $115,781

8.00%

$115,782 – $122,728

8.50%

$122,729 – $130,092

9.00%

$130,093 – $137,897

9.50%

$137,898 and above

10%

Should you declare your HECS debt?

Yes, when applying for a home loan you are required to provide details of all your income and expenses, and assets and liabilities to your broker or lender. This includes providing information about the outstanding balance on your HECS debt. 

5 ways  to get a home loan with a HECS debt

While your HECS debt can feel like a large barrier to buying your home, you are still able to get a home loan with an existing student loan. 

Some potential solutions to help your home loan application and strengthen your borrowing power with a HECS debt include: 

1 Reducing HECS or other existing debt

If you have the ability to do so, you could choose to make voluntary repayments to pay down your HECS or other existing debt you may hold. This will increase your capacity to service a mortgage from a lender's perspective but may reduce the size of your deposit. 

2 Save for a bigger deposit

If you choose to wait and save for a bigger deposit, this can also assist in increasing your borrowing power, as your loan application will see a lower loan-to-value ratio (LVR) and therefore there is less of a perceived risk to the lender. 

3 Understand your borrowing power

You can use our borrowing power calculator to understand what an estimate of your borrowing capacity would look like depending on your current situation and even get an understanding of how a reduced debt or higher income can affect your borrowing power. 

4 First home buyer incentives

If you have a student loan and are looking at purchasing your first home you may still be eligible for a government grant or scheme to assist you with your situation. If eligible and approved for both the First Home Owner Grant (FHOG) and the First home loan deposit scheme, you may receive a lump sum payment to help towards your home purchase and be able to apply to get a home loan with a low deposit without paying lenders mortgage insurance (LMI).  

Speak to your local Mortgage Choice broker to go through your situation and understand what first home buyer incentives may be available to you! 

5 Speak with a Mortgage Broker

Choosing to use a mortgage broker can be beneficial if you still have your student loan, as a Mortgage Choice broker can review your application and provide expert advice as to which lenders may look more favourably to your situation in regards to your HECS debt. 

Using a Mortgage Choice broker can also prevent you from applying for a home loan with too many lenders to understand your serviceability as they will be able to compare thousands of loans across over 25 lenders to find the right loan for your situation. 

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Posted in: Home loans


1 CPI is used to measure inflation and understand price changes in thousands of household goods and services across a range of categories.