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Should I pay off my HECS before I apply, or does it even count?

Bayley Clarke · Mortgage broker on the road · Last checked 16 October 2026 · 3 min read

The 60 second version, filmed from the driver's seat. The rest of this page is the detail underneath it.

Why HECS counts the way it does

A HECS debt isn't like a car loan with a fixed repayment. Your compulsory repayment comes out of your pay based on how much you earn, and that's mostly what the bank looks at. Most lenders work it out from your income at the ATO repayment rates, and plenty of their calculators do it automatically.

So two people with the same HECS balance can be hit very differently. Someone on a higher income has a bigger compulsory repayment and loses more borrowing capacity, even if they owe less. The balance doesn't set how much it bites today, but as you'll see below, it's often what decides whether a lender will drop it from the sums.

When paying it off is a good trade

The question is always the payoff. Say you owe $10k, you've got a solid deposit, and the HECS repayment is knocking $50k off what you can borrow. Pay off the $10k, prove it's gone, and that repayment comes out of the bank's calculation. You've spent $10k to gain $50k of borrowing. That's a pretty good return.

Now flip it. Say you owe $30k and clearing it would take a big chunk out of your deposit, but your income means the repayment isn't moving your borrowing much. You've just spent $30k of deposit for close to nothing, and you may now need a bigger loan or mortgage insurance to cover the gap. Makes no difference to the borrowing, a big difference to the deposit.

Where the banks actually split on this

The real lever isn't the size of your repayment. It's whether the lender is allowed to leave the debt out, and that comes down to one of three things. Balance: one of the big banks can exclude a HECS debt of $20k or less if it's the only thing stopping the loan from working, with recent ATO evidence, and another lender has a similar path for $15k or less if you can show the money to clear it outside the loan. Timing: a couple of the big banks and a few smaller lenders will look past it if it's going to be paid off within 12 months, generally only if the loan doesn't work otherwise and only if you've finished studying. Proof of payout: at least one lender drops it once you show it's paid out in full.

A few other differences matter. Most lenders that state it leave HECS out of their debt-to-income limit, but at least one counts it. Several won't let you roll a HECS debt into the home loan. And the repayment thresholds move each year, so it's worth asking whether a lender's calculator has caught up. That's why I run it with and without the HECS across a few lenders before anyone touches their deposit. Sometimes the right move is paying it off. Sometimes it's picking the lender that can leave it out, and keeping your deposit.