For years, one of the most common questions we hear from younger buyers across Geelong, the Bellarine Peninsula, the Surf Coast and Melbourne has been some version of: “Will my HECS debt stop me getting a home loan?” It is a fair question: student debt sits quietly in the background of most graduates’ finances, and until recently it could take a surprisingly large bite out of borrowing power.
The good news is that 2025 delivered the biggest shake-up to HELP debt in a generation, and 2026 is the first full year borrowers get the benefit of it. Between the 20% debt cut, a much higher repayment threshold and new guidance on how lenders must treat student debt, the picture for buyers with HECS balances has genuinely improved. This guide explains what changed, how lenders now assess HELP debt, and how to make the most of it: whether you are buying in Armstrong Creek or applying from anywhere in Australia.
In August 2025, the Federal Parliament passed legislation reducing every outstanding student loan balance (HECS-HELP, FEE-HELP and other HELP loan types) by 20%. The cut was calculated on each person’s balance as at 1 June 2025, before that year’s indexation was applied, and the ATO applied it automatically. No application was required. The government put the total value of debt wiped at around $16 billion across roughly three million Australians, though your individual reduction depends entirely on what you owed at that date: you can confirm your current balance any time through myGov.
Just as importantly for home buyers, the way repayments are calculated changed from 1 July 2025. The minimum repayment threshold rose from $54,435 to $67,000, and repayments switched from a flat percentage of your whole income to a marginal system that works like income tax: you only pay the repayment rate on income above the threshold, not on every dollar you earn.
of every outstanding HELP balance (as at 1 June 2025) was wiped automatically under legislation passed in August 2025, and a new $67,000 repayment threshold means most graduates now repay less each year as well.
Here is how HELP repayments work for the 2025-26 income year under the new marginal system. These thresholds are indexed and can change each financial year, so confirm the current figures with the ATO or Study Assist, or ask us to check them as part of your assessment.
| Repayment Income (2025-26) | What You Repay |
|---|---|
| Up to $67,000 | Nil: no compulsory repayment |
| $67,001 to $125,000 | 15c for each $1 over $67,000 |
| $125,001 to $179,285 | $8,700 plus 17c for each $1 over $125,000 |
| $179,286 and above | A flat 10% of repayment income |
The practical effect: a graduate earning $80,000 now makes a compulsory repayment of $1,950 for the year, where the old flat-rate system would have taken several thousand dollars. Lower compulsory repayments mean more take-home pay, and take-home pay is exactly what lenders look at when they calculate how much you can borrow.
HECS-HELP is an unusual debt. There is no interest rate: the balance is indexed once a year instead, now at the lower of CPI and wage growth, and repayments only kick in once your income crosses the threshold. For years, though, most lenders treated it much like any other liability, deducting the repayment from your income and shrinking your borrowing power accordingly.
That is where the second big change comes in. Following guidance from ASIC and APRA announced in early 2025, with APRA’s updated reporting treatment taking effect from 30 September 2025, two things shifted. First, HELP debt is now excluded from the debt figure used in your debt-to-income (DTI) ratio: the measure many lenders use to cap total borrowing at a multiple of income. Second, lenders may disregard your HELP repayments altogether in their serviceability assessment where the debt is expected to be paid off in the near term: generally interpreted as within around 12 months.
Individual banks have implemented this at different speeds and with different fine print: some have been reported to disregard small balances below a set dollar figure, others to apply reduced buffers where a debt clears within a few years. We deliberately have not listed each lender’s current policy here because these settings change frequently; the point is that lender choice now matters more than ever for applicants with student debt. The same borrower can be assessed quite differently across our panel, which is one of the clearest arguments for using a broker rather than walking into a single bank.
Tahlia and Josh, both in their late twenties, wanted to buy their first home in Armstrong Creek. Between them they carried two HELP debts, and when they first tested their borrowing power in early 2024 the repayments knocked a meaningful chunk off what they could borrow. When they came back to us this year, the picture had changed: the 20% reduction had shrunk both balances, the higher threshold had cut Tahlia’s compulsory repayment, and Josh’s remaining balance was small enough that it was on track to be cleared within the year: which meant we could approach lenders whose policy allowed his repayment to be disregarded entirely. We modelled their scenario across several lenders, and the difference between the most conservative and the most favourable assessment ran to tens of thousands of dollars of borrowing power. They bought a four-bedroom house and land package with confidence, without making a single extra HECS repayment.
This is the question we get most, and the honest answer is: it depends, and the maths has changed. Wiping a HELP balance removes the compulsory repayment from your payslip, which lifts the income lenders assess and can increase your borrowing power. If your balance is already small, clearing it (or simply showing it will be cleared within about 12 months) can unlock the near-term payoff exclusion described above.
But there is a real trade-off. Every dollar you put into HECS is a dollar that is no longer in your deposit. A bigger deposit can mean a lower loan-to-value ratio, a sharper interest rate, and less (or no) lenders mortgage insurance, and with HELP debt now carrying no interest and indexation capped at the lower of CPI and wage growth, it is among the cheapest debt you will ever hold. For many first home buyers, keeping the cash in the deposit and choosing a lender with favourable HECS policy beats paying the debt down. For others (especially those within striking distance of clearing a small balance) the opposite is true. This is a genuinely case-by-case decision, and it is exactly the kind of modelling we do before an application goes anywhere near a lender.
Always declare your HELP debt on your application: lenders can see the repayment coming out of your payslip, and an undisclosed debt discovered late can derail an otherwise clean approval. Before you apply, download your current balance from myGov so your figures are exact, and get your pre-approval in place before you start seriously inspecting properties. If your balance has changed since the 20% reduction was applied, make sure your application reflects the new, lower figure: it is surprising how often the old balance is still quoted.
For first home buyers across Geelong, Lara, Armstrong Creek, Ocean Grove, Barwon Heads, Torquay and the wider Surf Coast, the HECS changes stack on top of an already substantial set of supports. The expanded Help to Buy shared equity scheme opened to more buyers from 1 July 2026, the First Home Guarantee allows eligible buyers to purchase with a small deposit and no LMI, and Victorian first home buyers may also qualify for stamp duty concessions. A graduate couple who assumed two years ago that their student debt priced them out of the Geelong market may find in 2026 that the combination of a smaller HELP balance, lower repayments, friendlier lender treatment and a government guarantee changes the answer entirely.
The same logic applies well beyond our region. We arrange loans for young professionals, allied health workers and other graduates from Melbourne and Ballarat to clients right across Australia, and because HECS policy now varies so much between lenders, matching the borrower to the lender has become one of the highest-value things a broker does. If your borrowing power was assessed before mid-2025, it is worth re-running the numbers: the rules have moved in your favour.
Yes, but less than it used to. Lenders deduct your compulsory HELP repayment from your income when assessing what you can afford, which reduces borrowing power. However, HELP debt is now excluded from debt-to-income calculations, and where the balance will be cleared within about 12 months many lenders can disregard the repayment entirely. It does not appear on your credit report and does not hurt your credit score.
If you had an outstanding HELP, VET Student Loan or similar balance as at 1 June 2025, then yes: legislation passed in August 2025 reduced it by 20%, calculated before that year’s indexation, and the ATO applied the cut automatically. Check your current balance in myGov, and use that up-to-date figure in any loan application.
Not automatically. Clearing the debt removes the repayment from your payslip and can lift borrowing power, but it also shrinks your deposit: which can mean a higher loan-to-value ratio and lenders mortgage insurance. Because HELP debt carries no interest and is indexed at the lower of CPI and wage growth, keeping cash in your deposit often wins. Model both scenarios with a broker before deciding.
It varies widely with your income, balance and lender. The higher $67,000 threshold and marginal repayment system mean most graduates now have lower compulsory repayments, which lifts assessable income, and favourable lender policies can add further capacity: in some scenarios the difference runs to tens of thousands of dollars. There is no one-size-fits-all figure, so have a broker model your actual numbers across multiple lenders.
We’ll model your borrowing power across multiple lenders under the new HECS rules, and show you whether paying down your debt or keeping your deposit intact puts you further ahead.
With years of experience in mortgage broking and finance, Melanie helps first home buyers, homeowners and investors across Geelong, the Bellarine, the Surf Coast, Melbourne and regional Victoria navigate lending policy and structure the right loan. Contact our team on 03 9020 2699.
