How HECS-HELP Debt Changes Could Affect First-Home Buyers
13 Feb, 2025
Updated: 13 Feb, 2025
If you’re a first-home buyer with a HECS-HELP debt, you may have found that it affects your borrowing power. The government is proposing changes that could make it easier for recent Uni graduates to enter the property market. But will these changes help?
Our mortgage experts at Home Loan Experts break it down for you.
The Current HECS-HELP Debt Landscape
Nearly 3 million Australians had a HELP debt in the 2023-24 financial year, Australian Tax Office data shows.
- The average repayment time has increased to nearly 10 years, up from 7.3 years in 2005-06.
- Around 501,000 people have a debt between $20,000 and $30,000.
- Another 380,000 owe up to $40,000, while 39,000 people have debts as high as $90,000.
What’s Changing for First-Home Buyers?
The government has proposed adjusting how lenders assess HECS-HELP debt to assist younger borrowers. Additionally, if elected, Labor has promised to reduce HECS debt by 20% for each student.
Our Experts’ Take On The Changes
‘A Band-Aid Solution’?
“This policy targets younger borrowers, particularly university graduates looking to buy their first home. While it sounds beneficial, it’s ultimately a band-aid solution.
“Even if lenders stop factoring in HECS debt when assessing borrowing power, graduates will still need to make repayments. A more effective solution would be to stop indexing HECS debt to inflation. Under the current system, if inflation is 3%, a $30,000 HECS debt grows to $30,900 in a year, adding to the financial burden.”
Sheng Ye, Home Loan Experts Mortgage Broker
A Question Of Fairness
“If HECS debt is excluded from loan serviceability calculations, it creates an unfair system. What about those who used their savings to pay off their HECS debt? Should they get their money back?
“It also raises concerns about affordability. Even professionals on high incomes struggle to buy in cities like Sydney. If student debt is ignored, should other expenses like private school fees also be excluded?
“Ultimately, the issue is the strict lending buffers that make it difficult for all borrowers, not just those with HECS debt.”
Jonathan Preston, Mortgage Broker
A Small Part Of A Bigger Issue
“Many clients see HECS debt as interest-free and prefer to pay off credit cards, car loans, or personal loans first.
“Adjusting serviceability calculations may help a little, but the real problem is high house prices and strict lending policies. Most young buyers on entry-level salaries still won’t qualify for the properties they want.”
Siddhartha Bajracharya, Mortgage Broker
Little To No Increase In Borrowing Power
“HECS repayments are income-based, so removing them from serviceability assessments won’t lead to a huge borrowing boost.
“For example, a single borrower earning $90,000 with an 80% LVR and a $50,000 HECS debt currently has a borrowing power of around $425,000. Without HECS debt, this increases to about $475,000; a modest $50,000 difference.
“For comparison, replacing HECS debt with a $50,000 personal loan would reduce borrowing capacity to about $370,000 due to higher interest rates and shorter loan terms.”
Ajar Rajbhandari, Mortgage Broker
The Real Impact: Borrowing Power Analysis
Our analysis shows that the higher your income, the greater the benefit if HECS debt is ignored:
| Annual Income | Borrowing Power (With HECS Debt) | Borrowing Power (Without HECS Debt) | % Change |
|---|---|---|---|
$60,000 | $325,200 | $332,700 | 2.31% |
$90,000 | $444,000 | $492,300 | 10.88% |
$120,000 | $561,400 | $658,100 | 17.22% |
$150,000 | $680,400 | $825,300 | 21.30% |
$200,000 | $850,100 | $1,064,400 | 25.21% |
The biggest winners would be higher-income earners. Those making $200,000 would experience a 25.21% increase in borrowing power. Meanwhile, those earning $60,000 would see only a 2.31% increase.
What Does This Mean for First-Home Buyers?
While removing HECS debt from serviceability calculations might provide a small boost, it won’t make housing significantly more affordable. The key issues remain high property prices, strict lending buffers, and rising inflation.
More effective solutions could include:
- Stopping HECS debt from increasing with inflation.
- Reducing APRA’s lending buffer.
- Introducing broader affordability measures for first-home buyers.
These proposed changes are still at the recommendation stage, and whether they will be implemented remains to be seen.
