Does HECS/HELP debt affect home loans?

If you have a university education in Australia, you’ll likely also have a HECS/HELP debt. It’s still possible to get your first home loan with a higher education debt owing, though like other outstanding loans, it could potentially affect your mortgage application.

HECS/HELP in brief

The Higher Education Loan Plan (HELP) is also well-known by its former name, the Higher Education Contribution Scheme (HECS). This government program allows eligible Australians to pay for their tertiary education by taking on a debt.

Unlike traditional loans, interest isn’t charged on a HECS/HELP debt. Instead, your HECS/HELP debt is indexed against Australia’s Consumer Price Index (CPI) – in other words, your debt effectively increases with inflation. While this means your education could end up costing more than you initially expected, you’re also unlikely to end up in a situation where your debt increases faster than you can afford to pay it off (like with some credit cards or personal loans).

HECS/HELP debts are repaid differently to car loans, home loans and credit cards. Instead of making regular repayments from the money you take home from your job, once you start earning a salary over a threshold amount, a percentage of your income will be put aside to pay for your student debt. The higher your income, the larger the percentage of your income that will go towards your HECS/HELP.  

Learn more about how HECS/HELP works

What does a HECS/HELP debt mean for a mortgage?

It’s definitely possible to successfully apply for a home loan with an outstanding HECS/HELP debt owing. That said, there are two main ways that a HECS/HELP debt could affect a mortgage application:

1. While you’re paying off a higher education debt, you’ll effectively be taking home slightly less income from your job. This means you’ll have less money available to make mortgage repayments. This can affect your overall borrowing power – you may not be able to take as large a loan, and your choice of real estate could be limited.
2. While a HECS/HELP debt is different to most other forms of credit, it’s still an outstanding debt. Lenders will want to know about all of your debts and credit products when you apply for a home loan, including car loans, credit cards and more. The more money you currently owe, the lower the likelihood that a bank will lend you more money that could risk putting you into financial stress.

Could paying off my HECS/HELP debt help me get a mortgage?

As well as the payments that come out of your regular salary, it’s possible to make extra payments onto your HECS/HELP debt. This can help speed up the process of paying off the debt, which could help put you in a better position to apply for a mortgage, or to refinance an existing home loan. To learn more about making extra HECS/HELP payments, contact the Australian Tax Office (ATO).

If a bank is uncertain about lending you more money when you already have outstanding debts, clearing these debts may help to improve your mortgage application’s chance of approval. Paying off your car, cancelling your credit cards, or clearing your HECS/HELP debt may all help to improve the likelihood of being approved for a home loan.

Once your HECS/HELP debt has been paid off, the percentage of your income that had previously gone towards repayments can now go straight into your pocket. With more income available to go towards repayments, you may be able to borrow more money to buy a property.

While paying off your HECS/HELP debt could potentially help you successfully apply for a mortgage, there may be other steps you could take that could also affect your application, such as reducing your credit card’s maximum limit, or checking your credit history for any errors. A mortgage broker may be able to provide more advice on what you could do to improve your home loan application’s chances of approval, based on your own personal financial situation.

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