HECS/HELP Debt: How the 20% Reduction Changes Your Home Loan Application

If you’ve been putting off buying a home because of your HECS-HELP debt, there’s genuinely good news. The federal government’s promised 20% cut to student debt isn’t just a proposal anymore — it’s law, and the ATO has already applied it to millions of accounts. For anyone thinking about a home loan, this is one of those rare policy changes that can meaningfully move the needle on how much you’re able to borrow. Here’s what actually happened, and what it means when you sit down with a lender.

What Actually Changed

The Universities Accord (Cutting Student Debt by 20 Per Cent) Bill 2025 passed Parliament in mid-2025 and wiped 20% off the balance of every eligible HECS-HELP, VET Student Loan, and Australian Apprenticeship Support Loan as it stood on 1 June 2025 — before that year’s indexation was added. Over 3 million Australians benefited, with roughly $16 billion in debt erased across the country. On top of the balance cut, the government raised the minimum income threshold before compulsory repayments kick in, up to $67,000, and moved to a marginal repayment system — meaning you’re only charged a percentage on the income you earn above that threshold, rather than on your entire income. For most borrowers, that combination means a smaller HECS balance and a smaller annual repayment obligation than they had in 2024.

Why Any of This Matters to a Lender

Here’s the part many first-home buyers don’t realise: HECS-HELP doesn’t show up on your credit report, but it absolutely shows up in a bank’s serviceability assessment. When you apply for a mortgage, lenders treat your compulsory HECS repayment as a recurring committed expense, exactly like a car loan repayment or a credit card minimum. That figure gets subtracted from your income before the bank works out how much surplus you have to service a new loan. Because HECS repayments are calculated as a percentage of income above the threshold rather than a fixed amount, two people with an identical balance but different salaries can face very different impacts on their borrowing power — the higher earner’s repayment eats into more of their assessed surplus, even though their debt looks the same on paper.

How the Reduction Changes Your Application

With both the balance and the repayment threshold moving in your favour, the practical effect for many borrowers is a smaller monthly “expense” line in the bank’s calculations — which can translate into tens of thousands of dollars of extra borrowing capacity, depending on your income and the lender’s methodology. Some lenders have gone further still. A few major banks now reduce or even waive the serviceability buffer on HECS debt if it’s projected to be paid off within the next few years, and at least one major lender has begun excluding HECS repayments from serviceability altogether where the borrower can provide ATO documentation. That said, the exact dollar impact varies enormously between banks — some still calculate your HECS repayment against your current income, others against a projected future income, and the difference between the two approaches can be the gap between an approval and a knock-back. This is exactly the kind of detail that gets missed when you compare lenders on interest rate alone.

What This Means for You

If you’ve been sitting on the sidelines because your HECS balance seemed to be holding your borrowing power back, it’s worth revisiting the numbers now. Your compulsory repayment is very likely smaller than it was 18 months ago, your balance has already been cut by a fifth, and the lending landscape around HECS has shifted in your favour faster than most borrowers realise. But because every lender treats the debt differently — some more generously than others — the difference between a good outcome and a great one usually comes down to which lender you approach and how your application is structured.

Let’s Work Out What It Means for Your Borrowing Power

This is exactly where AA Finance Solutions comes in. Every borrower’s HECS balance, income, and repayment timeline is different, and so is every lender’s approach to assessing it — which means a generic borrowing power calculator will only ever give you part of the picture. Our team can review your actual HECS position, compare it against the lenders currently offering the most favourable HECS treatment, and show you exactly how much difference the 20% reduction has made to your borrowing capacity. If you’re ready to see how far your numbers can now stretch, get in touch with AA Finance Solutions for a personalised assessment — the right advice today could mean walking into your home loan application with thousands more in borrowing power than you expected.

*This article is general information only and does not constitute financial or lending advice. Lending criteria vary between institutions and individual circumstances — speak with AA Finance Solutions or a licensed mortgage broker before making any decisions