Does HECS or HELP Debt Affect Borrowing Power in 2026?

The short answer

Yes, HECS or HELP debt can affect borrowing power, but not because lenders treat it like a credit card.

The balance matters less than the compulsory repayment attached to your income. Lenders care about how much of your income is already committed before a mortgage repayment is added.

In 2026, this is especially important because the HELP repayment rules changed. From the 2025-26 income year, compulsory repayments are calculated using marginal rates. That means repayments apply only to income above the minimum threshold, instead of being calculated as one rate on your whole repayment income.

The minimum repayment threshold for 2025-26 is $67,000.

That change is good news for many graduates. But it does not make HELP invisible to lenders.

What changed for HELP repayments in 2025-26

The old repayment system was blunt. Once you crossed a repayment threshold, a percentage applied to your total repayment income.

From 2025-26, the system moved to marginal rates.

The ATO's 2025-26 table is:

For most borrowers under $179,286, this is more forgiving than the old structure.

Worked examples

Here is how the 2025-26 marginal system works in plain numbers.

Income of $70,000

Only $3,000 sits above the $67,000 threshold.

The compulsory repayment is 15% of $3,000, which is $450 per year, or about $38 per month.

Income of $90,000

$23,000 sits above the threshold.

The compulsory repayment is 15% of $23,000, which is $3,450 per year, or about $288 per month.

Income of $125,000

$58,000 sits above the threshold.

The compulsory repayment is 15% of $58,000, which is $8,700 per year, or $725 per month.

Income of $150,000

The first bracket repayment is $8,700. The income above $125,000 is $25,000, charged at 17%, which is $4,250.

The total compulsory repayment is $12,950 per year, or about $1,079 per month.

These examples are simplified and do not replace tax advice. Your repayment income can include more than salary, including taxable income, reportable fringe benefits, reportable super contributions and net investment losses.

How lenders usually look at HELP debt

When a lender assesses a home loan, it is trying to answer a basic question: can this borrower afford the mortgage if rates are higher than today?

HELP affects that answer because compulsory repayments reduce available cash flow.

A lender may look at:

• Your gross income.
• Your take-home income.
• The compulsory HELP repayment implied by your income.
• Existing debts.
• Credit card limits.
• Living expenses.
• Dependants.
• The proposed mortgage repayment at an assessment rate.

The HELP balance itself usually does not behave like a credit card balance. A $20,000 HELP balance does not have a fixed monthly repayment like a car loan. But if your income triggers compulsory repayments, that repayment can reduce borrowing capacity.

Does the 20% student debt reduction help borrowing power?

It can help, but not always in the way people expect.

The Australian Government's 20% student loan debt reduction has been applied, and the Department of Education says the ATO has completed processing the reductions. The measure reduced eligible HELP and other student loan balances that existed at the relevant date.

For mortgage borrowing power, the important question is whether the reduction removes or materially shortens your compulsory repayment obligation.

If your HELP balance is still large, your compulsory repayment may be the same this year because it is based on repayment income.

If the reduction means your HELP debt will be cleared soon, it may help your lender assessment, especially if the lender is willing to recognise that the debt is close to being paid off.

Should you pay off HELP before applying for a mortgage?

Sometimes, but not automatically.

Paying off HELP can improve cash flow if it removes a compulsory repayment. But using cash to clear HELP can also reduce your deposit, your stamp duty buffer and your post-settlement emergency fund.

That trade-off matters.

Consider someone with:

• $18,000 HELP balance.
• $100,000 income.
• $80,000 saved for a deposit and costs.

At $100,000 income, the 2025-26 compulsory repayment is 15% of $33,000, or $4,950 per year. Clearing the HELP debt may free up about $413 per month in assessed cash flow.

But it also removes $18,000 from the buyer's savings. If that pushes the buyer into a higher LVR, triggers LMI, or leaves them short on stamp duty, paying it off can backfire.

When paying off HELP may make sense

Paying off HELP before applying may be worth modelling if:

• The balance is small enough to clear without damaging your deposit.
• The compulsory repayment is materially reducing borrowing power.
• You are just short of the lender's serviceability test.
• Paying it off keeps you in the same LVR band.
• You still have enough cash for stamp duty, legal fees and a buffer.
• Your broker or lender confirms it will improve assessment.

It can be especially relevant for high-income applicants with a low remaining HELP balance.

When keeping the cash may be smarter

Keeping the cash may be better if:

• You are still saving for the minimum deposit.
• You need the cash for stamp duty or settlement costs.
• Paying off HELP would trigger LMI by reducing your deposit.
• Your HELP balance is large and the compulsory repayment will continue anyway.
• You do not have an emergency buffer after settlement.
• Your lender does not treat the payoff as enough to materially change approval.

Remember, a bigger deposit can improve LVR, reduce LMI, improve interest rate pricing and strengthen the overall application.

HELP and borrowing power after the 2026 RBA hikes

The timing matters. The RBA cash rate target is 4.35%, effective 6 May 2026, after increases in February, March and May 2026.

Higher rates reduce borrowing power because lenders assess repayments at higher rates. If a borrower also has HELP repayments, credit card limits or personal loans, the combined effect can be sharper than expected.

Run both scenarios through the Borrowing Power Calculator: one with HELP included, and one without. Then check whether clearing the HELP debt would leave enough cash for the purchase.

Common mistakes buyers make

Mistake 1: Looking only at the HELP balance

A $60,000 HELP balance on a lower income may have less immediate serviceability impact than a $10,000 balance on a higher income. The compulsory repayment is driven by repayment income.

Mistake 2: Clearing HELP without checking LVR

If clearing HELP drops your deposit from 12% to 8%, you may create a different problem. LMI and interest rate pricing can matter more than the HELP repayment.

Mistake 3: Forgetting credit card limits

Lenders often assess credit card limits even if the card is paid off each month. Reducing or closing unused limits can sometimes improve borrowing power more cleanly than paying off HELP.

Mistake 4: Assuming every lender treats HELP the same way

Policies vary. Some lenders may take a more practical view when a HELP debt is close to being cleared. Others may apply standard servicing rules until the debt is fully gone.

Bottom line

HELP debt affects borrowing power through cash flow. The 2025-26 marginal repayment system is more forgiving for many borrowers, but lenders still care about compulsory repayments.

Do not pay off HELP automatically before buying. Compare the benefit of removing the repayment against the cost of shrinking your deposit.

For many buyers, the strongest move is not pay off HELP at all costs. It is to reduce expensive debts first, lower unused credit card limits, keep a clean savings record, and preserve enough cash to settle safely.

Start with the Income Tax Calculator to estimate compulsory HELP repayments, then test serviceability with the Borrowing Power Calculator. If you are close to approval limits, ask a broker or lender to model both options before you move money.

Sources: Australian Taxation Office study and training loan repayment thresholds and rates for 2025-26; ATO study and training loans updates; Department of Education HELP indexation and debt reduction guidance, last modified 21 May 2026; Reserve Bank of Australia cash rate target data effective 6 May 2026. This article is general information, not tax, credit or financial advice.