In short: A HECS-HELP debt reduces your borrowing power because lenders deduct the compulsory repayment your employer withholds from your assessable income, and that repayment rises with your salary. It does not appear on your credit file and carries no interest, only indexation. Paying it out before you buy only makes sense if the balance is small and doing so does not eat the deposit you need; otherwise keep the cash and accept a slightly smaller loan.
Key takeaways
- Lenders treat your compulsory HELP repayment as a fixed monthly expense, which lowers the surplus available to service a loan.
- The effect scales with income: a higher salary means a higher repayment percentage and a larger deduction.
- HELP debt is not a credit contract, so it does not appear on your credit report and does not affect your credit score.
- Clearing a small balance can lift borrowing power meaningfully; clearing a large one usually costs more in lost deposit than it gains.
- Once the debt is repaid in full, most lenders stop counting it immediately, provided you can show the ATO balance is zero.
Graduates in their late twenties and thirties make up a large share of Melbourne's first home buyers, and almost all of them carry a HELP balance. The question we hear in Bundoora and Preston every week is some version of "should I clear my HECS first?" The answer depends on the arithmetic, so here is the arithmetic.
How the deduction works
Your employer withholds an extra amount from each pay to cover your compulsory HELP repayment. The percentage depends on your income and is set by the ATO each financial year; the current thresholds and rates are on the ATO's website. Lenders take that withheld amount, or calculate it from the ATO table, and treat it as a committed outgoing.
For illustration, suppose your compulsory repayment on a $90,000 salary works out at $375 a month. In a serviceability calculation:
| Line | Without HELP debt | With HELP debt |
|---|---|---|
| Net monthly income (2026–27 rates, incl. Medicare) | $5,890 | $5,890 |
| Less HELP withholding | Nil | $375 |
| Less living expenses (illustrative) | $2,400 | $2,400 |
| Less other commitments | Nil | Nil |
| Surplus for loan repayments | $3,490 | $3,115 |
Lenders test your loan at your rate plus 3 percentage points. For illustration at 9.00% p.a. assessment, $375 of monthly surplus supports roughly $46,000 of loan. That is the approximate cost of the HELP debt to this borrower's borrowing power. On a higher salary with a higher repayment percentage the deduction, and the impact, grows. Test your own scenario with the borrowing power calculator.
What HELP debt does not do
- It is not on your credit file. HELP is a loan from the Commonwealth, not a credit provider, so it is invisible to credit bureaus. It has no effect on your credit score.
- It does not attract interest. The balance is indexed annually, not charged interest, which is why paying it down is rarely a priority from a pure cost perspective.
- It does not require a deposit. Unlike a car loan, there is no lump-sum repayment lenders worry about.
- It does not stop you getting a loan. It shrinks the loan; it does not disqualify you.
Should you pay it out before you apply?
This is a trade between borrowing power and deposit. Every dollar you put towards HELP is a dollar not in your deposit, and the deposit determines your LVR, whether you pay LMI, and whether you qualify for the First Home Guarantee's 5% threshold.
Worked example one: small balance, clear it
Priya earns $85,000, has $8,000 of HELP debt and $60,000 saved. Her compulsory repayment, for illustration, is $300 a month. Paying out the $8,000 leaves her $52,000, still enough for a 5% deposit under the First Home Guarantee on a purchase up to about $950,000 with costs on top. The $300 a month freed up adds roughly $37,000 of borrowing power at a 9.00% p.a. assessment rate. Clearing the debt costs her nothing in eligibility and gains her a larger loan. Sensible.
Worked example two: large balance, keep the cash
Aman earns $110,000, has $45,000 of HELP debt and $70,000 saved. His compulsory repayment, for illustration, is $600 a month. Paying out the debt would leave $25,000, which is not enough for a 5% deposit plus costs on the $600,000 townhouse he wants in Epping. He would go from a viable purchase to no purchase. Keeping the HELP debt costs him around $75,000 of borrowing power, but he still qualifies for a loan in his target range. Keep the cash, accept the smaller ceiling.
Worked example three: partial payment
A middle path is paying the balance down to a point where the freed-up surplus meets your target loan without draining the deposit. Because compulsory repayments are calculated on income rather than balance, a partial payment does not reduce the monthly withholding; it only shortens the time until the debt is gone. That makes partial payments the least effective of the three options for borrowing power. Either clear it or leave it.
Timing matters
If you decide to clear the debt, do it before you lodge the loan application and obtain evidence that the ATO balance is zero. Some lenders will also want you to lodge a withholding declaration with your employer so the extra tax stops coming out, and a payslip showing the change. Without those, the assessor keeps deducting a repayment that no longer exists.
If you have a voluntary repayment planned around the annual indexation date, weigh that against your settlement timeline. A broker can sequence the two so the repayment lands before the application. Our pre-approval guide covers what lenders verify and when.
Other ways to recover the lost borrowing power
If you keep the HELP debt, these usually outweigh it:
- Cancel or reduce credit card limits. A $15,000 unused limit is assessed as if fully drawn and typically costs more borrowing power than a HELP debt.
- Clear buy-now-pay-later and small personal loans. Their monthly commitments are deducted exactly like HELP.
- Add a second income. A partner's income, even part-time, adds servicing.
- Use a scheme. The First Home Guarantee removes LMI and Help to Buy shrinks the loan itself, which shrinks the repayment being tested. Our first home buyer loans page explains both, and the Victorian duty concessions on our stamp duty exemptions page reduce the cash you need.
- Extend the loan term to 30 years if you were considering shorter. The assessed repayment falls.
Our how to improve borrowing power guide ranks all of these, and Moneysmart has a plain-English explainer on HELP repayments.
Frequently asked questions
Does HECS debt show up on my credit report?
No. HELP debts are administered by the ATO, not a credit provider, and are never reported to credit bureaus. Lenders learn about them because you disclose them on the application and because the withholding appears on your payslips and your notice of assessment. Not disclosing a HELP debt is a misrepresentation and will be discovered.
Will my borrowing power increase when my HECS is paid off through my wages?
Yes. Once the balance reaches zero, your employer stops withholding and your net pay rises. Lenders assess on current income and commitments, so a debt that will be cleared next year does not help you today. If you are within a year of the end and can afford to clear it without hurting the deposit, doing so now unlocks the borrowing power immediately.
Does a partner's HECS debt affect a joint application?
Yes, in the same way as your own. Each applicant's compulsory repayment is deducted from that applicant's income. Two HELP debts on a joint application reduce combined surplus twice. Whether either should be cleared follows the same balance-versus-deposit trade-off described above.
Talk to GNT Finance
Gorakh Timilsina will run your borrowing power both ways, with the HELP debt cleared and with it kept, so you can see which path gets you the home you want with the deposit you have. There is no cost to you for our home-loan service in most cases. Book a free consultation or call 0426 403 703.
This page is general information only and not legal, tax or financial advice. Laws change — confirm current rules with the State Revenue Office, the ATO or a licensed professional.
Written by Gorakh Timilsina
Founder, CEO & Senior Mortgage Consultant at GNT Finance. Gorakh started as a broker assistant, spent years as a senior credit officer assessing loan applications, and now helps Melbourne families get the right loan approved. English, Nepali and Hindi spoken.