Is Your Student Debt Affecting Your Borrowing Power?

McGrath Aspley
08/01/2025 | 3 MIN READ

For many Australians, student debt—commonly referred to as HECS-HELP debt—is a necessary part of accessing higher education. However, if you’re planning to buy a home or invest in property, you might be asking yourself, how much does HECS affect borrowing power?  While it’s often considered manageable, HECS debt can significantly impact your financial capacity when applying for a home loan. Let’s explore how it works and what it means for you.

Understanding Student Loan Debt in Australia

Australia’s HECS-HELP debt system operates differently from traditional student loans in other countries. Rather than requiring direct monthly repayments to a lender, repayments are automatically deducted from your income once you earn above a specific threshold, currently $51,550 per annum. Additionally, borrowers have the option to make voluntary repayments if they wish to reduce their debt faster.

Although HECS debt is considered interest-free, it is subject to annual indexation. This process adjusts your debt to reflect changes in inflation, ensuring the “real value” of the loan is maintained. In practical terms, this means your overall debt can still increase each year.

Despite its flexible repayment structure, HECS debt isn’t invisible to lenders. When assessing your borrowing capacity, banks include your HECS repayment obligations in their calculations. This means that your student loan debt in Australia plays a critical role in shaping your financial profile.

How Much Does HECS Affect Borrowing Power?

When lenders calculate your borrowing power, they examine your income, expenses, and existing financial obligations. HECS debt can have the following effects:

  • Reduced Net Income: HECS repayments, ranging from 1% to 10% of your income, reduce your disposable income. This can affect how much a bank is willing to lend for a mortgage. For instance, if you’re earning $70,000 annually, your HECS repayment of 3% equates to $2,100 per year, reducing your overall borrowing power by tens of thousands of dollars.
  • Debt-to-Income (DTI) Ratio: Banks use your DTI ratio to gauge how much additional debt you can handle. While HECS debt isn’t counted as a liability in the same way as a personal loan or credit card debt, its repayment obligations are factored into your financial outgoings. As a result, lenders may reduce your loan approval amount.

Does Student Loan Debt Affect Buying a House?

If you’re concerned about whether student loan debt affects buying a house, the answer is yes—but it doesn’t make homeownership impossible. Many Australians successfully secure home loans despite their HECS debt. The key is understanding how your debt obligations influence your finances and working with lenders who view HECS repayments pragmatically.

Is HECS Debt Relief on the Horizon?

If you currently have a HECS debt, you may be aware that reforms on how indexation is calculated recently came into effect. Indexation on HECS debt is now determined by the lower of two metrics: the Consumer Price Index (CPI) or the Wage Price Index (WPI). This change aims to reduce the impact of inflation on HECS balances.

The Government has applied these indexation changes retroactively, with many borrowers receiving credits to their HECS balances for 2023 and 2024.

There has also been an announcement of a proposed 20% reduction on all existing HECS debts, as well as raising the minimum repayment threshold from an annual income of $54,335 to $67,000. However, the implementation of the changes depends on the outcome of the next federal election.

These developments could help ease the financial burden of HECS debt, potentially improving borrowing power for Australians with student loans.

Can You Get a Home Loan With Student Debt?

If you’re wondering, can I get a home loan with student debt?,  the answer is yes. HECS debt doesn’t automatically disqualify you from obtaining a mortgage. However, it does require a strategic approach. Consulting a financial expert or mortgage broker who understands how lenders assess HECS debt can help maximise your borrowing power.

Contact Us Today

Don’t let HECS debt hold you back from achieving your property goals. Contact McGrath Aspley to discuss your property management needs and get personalised guidance tailored to your financial situation. Whether you’re exploring the housing market or planning to expand your portfolio, our team is here to help you every step of the way.


Disclaimer

All information is general and not intended as a substitute for professional advice.