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
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.