How much does a HECS debt affect your borrowing power?

Bayley Clarke · Mortgage broker on the road · Last checked 3 August 2026 · 4 min read

The short answer

Your HECS balance is almost irrelevant. Lenders assess HECS as a percentage of what you earn, not what you owe, so a $20,000 debt and a $60,000 debt on the same salary reduce your borrowing capacity by the same amount.

Which means paying it off early almost never buys back what it costs you. On an $80,000 salary, clearing a $30,000 HECS debt bought one client roughly $12,000 of extra borrowing capacity. Thirty grand to gain twelve.

Why the size of your HECS barely matters

Most people assume HECS works like a car loan. Owe more, lose more. It doesn't.

HECS comes out of your pay as a percentage of what you earn. That percentage climbs as your income climbs, and it has nothing to do with your balance. Someone on $90,000 with $8,000 left pays the same rate as someone on $90,000 with $80,000 left.

Lenders assess it the same way. They look at your income, work out what your HECS repayment is, and treat that as an ongoing commitment. The balance never enters the calculation.

I thought if I had thirty thousand dollars in HECS that would reduce our borrowing power by like a hundred thousand dollars. Similar to a car.

First home buyer, Sydney. She was out by roughly $88,000.

Should I pay off my HECS before I apply?

Almost certainly not, and here is the arithmetic that settles it.

A client came to me weighing this exact question. Radiographer, $80,000, $30,000 of HECS, partner with the deposit but not the income. She was about to put her entire savings into the debt because her partner had paid his off and thought she should too.

Cash it costs

$30,000

Every dollar of her savings, gone from the deposit.

Capacity it buys

$12,000

The entire gain in what a lender would advance her.

Spend thirty to gain twelve. And she'd have arrived at the application with nothing in the bank, when the deposit was the actual constraint.

Two more things worth knowing. HECS is indexed rather than charged a market interest rate, so it is the cheapest debt you will ever carry. And it clears itself in the background whether you think about it or not.

I run this comparison most weeks. It rarely stacks up.

When it actually is worth paying it down

You're nearly there anyway. A few thousand left and spare cash sitting idle. Clear it, remove the commitment entirely.
You're on a high income. The repayment rate climbs with earnings, so the assessed commitment gets big enough to be worth removing.
You're a few thousand short of the approval. If the gap is small, this is one of the few levers that moves quickly.
The cash was never going to be the deposit. If your deposit is sorted and the money is genuinely spare, the argument changes.

What's probably actually limiting you

Nine times out of ten, someone worried about their HECS is worried about the wrong debt.

A teacher came to me with $97,000 a year, $23,000 of HECS, and a car loan at $170 a week. She was convinced the HECS was the problem. The HECS was costing her a fraction of what the car was. The car loan was costing her about $110,000 of purchasing power, the difference between a house and a unit in her town.

Credit cards do the same thing more quietly: lenders assess the limit, not the balance. Both have their own answers: car loans here, credit cards here.

Want your actual number, not a story about someone else's?

Give me half an hour and I'll run it in front of you, both ways. With the HECS and without it, on your real income. If the honest answer is that you should pay it off and come back in a year, I'll tell you that too.

Book a 30 minute call Call 0437 189 939

No application, no credit check, nothing on your file. Just the numbers.

Next question

Does a car loan stop me getting a home loan?

If the HECS myth surprised you, the car loan is the inverse: same money owing, roughly ten times the damage.