HECS-HELP and your home loan in Australia (2026): the new APRA rules, lender by lender

If you carry HECS-HELP debt and you have ever been told you "can't borrow quite enough" for the home you want, you are very much not alone. Through 2024 and most of 2025, banks treated your study loan almost identically to a credit card: a monthly commitment sitting on your file, cutting into how much they believed you could afford. For a first-home buyer on $85,000 with an average HECS balance, that quietly erased somewhere between $70,000 and $130,000 of borrowing capacity — often the difference between the house you wanted and the one you settled for.

Late in 2025, that arithmetic changed. Not with a press conference or a cash rate move, but through a short APRA update and a handful of lender policy memos that almost nobody outside the industry read. The result, twelve months on, is that the same file that was declined in early 2025 can now be approved at a materially higher number — if you apply to the right lender, with the right evidence, in the right order.

This is a working broker's guide to those new rules in April 2026. What actually changed. Which lenders apply it, and how. What to do before you submit. And the traps that still catch buyers even under the new regime — including APRA's 3% serviceability buffer and the fresh 20% debt-to-income cap that quietly landed on 1 February this year.

TL;DR — the short version

• APRA clarified its guidance on HECS-HELP debt on 19 June 2025, with reporting changes live from 30 September 2025. Lenders may (not must) exclude a HECS-HELP repayment from serviceability where the debt is expected to be paid off in the near term. (APRA — Clarifying the treatment of HELP debt obligations)
• Commonwealth Bank acted first, from 9 April 2025: HECS is ignored if it will be repaid within 12 months; a reduced 1% buffer replaces the usual 3% buffer where the debt is expected to be gone within 2–5 years.
• NAB followed from 31 July 2025: HECS-HELP balances of $20,000 or less are excluded from servicing calculations entirely.
• Westpac and ANZ have publicly welcomed the change and are assessing files on a case-by-case basis; smaller banks and non-banks vary.
• The 1 June 2025 one-off 20% reduction in outstanding HELP balances is now baked in — for a borrower with the average $27,600 balance that trimmed roughly $5,520 off the debt automatically. (Study Assist — Loan increases and indexation)
• The 2025-26 repayment threshold is $67,000, with a new marginal system (15c/$1 over $67,000, then 17c/$1 over $125,000, then a flat 10% over $179,286). (ATO — Study and training loan repayment thresholds)
• APRA's 3% serviceability buffer is unchanged. The new 20% DTI cap on loans above 6x income (live from 1 Feb 2026) still applies regardless of HECS treatment.
• In practical terms, the right lender choice can now free up $25,000 to $180,000 of additional borrowing power for HECS borrowers — but only if your file is sequenced correctly.

A quick refresher: what HECS-HELP actually is in 2026

It is worth remembering what HECS-HELP is, because the rules you were told at university are no longer quite right.

HECS-HELP (Higher Education Contribution Scheme — Higher Education Loan Program) is an income-contingent loan from the Commonwealth. You do not pay interest, and you do not make fixed monthly repayments. Instead:

1. Your employer withholds an amount based on your repayment income once it crosses an annual threshold; that amount is reconciled through your tax return.
2. Your remaining balance is indexed on 1 June each year — but only against the portion that is older than 11 months, and only at the lower of CPI or WPI (legislated in November 2024 and backdated to 1 June 2023). The rate applied on 1 June 2025 was 3.2%. (ATO — Study and training loan indexation rates)
3. From the 2025-26 income year, compulsory repayments are calculated marginally (on income above the threshold), not as a flat percentage of your whole income.

The 2025-26 repayment bands

Source: ATO — Study and training loan repayment thresholds and rates (2025-26).

On $90,000 of repayment income, for example, your annual HECS comes out at 15% × ($90,000 − $67,000) = $3,450 a year, or about $288 per month. Under the old rules, that $288 was the number a lender effectively stripped out of your disposable income — which is why HECS felt like it punched so hard above its weight.

The 20% one-off reduction

On top of this, legislation passed in 2025 gave borrowers a one-off 20% cut to their HELP balance, applied by the ATO on 1 June 2025 before that year's indexation. For the ~3 million Australians with HELP debt, the average saving was about $5,520. That reduction is already in your MyGov balance today — there is nothing for you to claim. But it matters for your home loan because a smaller balance now means a shorter payoff horizon, which is exactly the lever the new APRA rules turn on.

What actually changed on 30 September 2025

APRA's update was narrow, deliberate and — for brokers — quietly significant.

On 20 February 2025, APRA opened a consultation on how authorised deposit-taking institutions (banks, credit unions, building societies) should treat HELP debt in home loan serviceability. The Treasurer, Jim Chalmers, had publicly flagged that the existing treatment looked heavy-handed for borrowers whose debt was almost gone. On 19 June 2025, APRA finalised its response and released an updated Prudential Practice Guide APG 223 Residential Mortgage Lending together with Reporting Standard ARS 223.0. (APRA — Clarifying the treatment of HELP debt obligations)

Two practical threads came out of it.

1. Near-term payoff: lenders may exclude the HECS repayment

APRA's guidance accepts that, by exception, it can be reasonable for a lender to exclude the HECS-HELP repayment from the serviceability calculation where the borrower is expected to pay the debt off in the near term through compulsory repayments. "Near term" is not strictly defined in APG 223, but the practical industry interpretation — and the one CBA adopted — is within 12 months. NAB went slightly further and used a balance threshold instead: $20,000 or less is treated as near-enough-to-gone to ignore.

Two critical points are often missed:

• "May", not "must". APRA has permitted the exclusion. It has not mandated it. Each lender decides whether and how to apply the change in its own credit policy.
• It is still a whole-of-file assessment. Lenders will want to see that the rest of the application holds up, especially at current rates plus the 3% buffer.

2. DTI reporting treatment

APRA also clarified how HECS-HELP debt is treated in the debt-to-income (DTI) ratio that lenders must report. In a subtle but useful shift, smaller HELP balances can be treated differently in DTI reporting, which matters because APRA's new macroprudential limit — no more than 20% of new lending can be to borrowers with a DTI above 6x, in force from 1 February 2026 — is calculated off that number. (ABC News — APRA imposes home loan caps)

For a borrower sitting on the DTI fence, a more forgiving HECS treatment can be the difference between being counted inside the 20% bucket (with stricter pricing or a harder approval path) and outside it.

What did not change

• The 3% serviceability buffer is unchanged. A 6% loan is still stress-tested at 9%. APRA reaffirmed this in mid-2025 and again alongside the DTI announcement. (Savings.com.au — No change in bank lending rules)
• Full living-expense benchmarks still apply.
• You still need to disclose HECS-HELP; it is on your tax return, your pay slips and your credit file.

Lender-by-lender: how it is actually being applied in April 2026

This is where the real money is, and where most online explainers go fuzzy. Policies evolve quietly. The summary below is based on published lender communications and how files are moving in April 2026; always confirm the current wording with the lender or your broker at the time of application.

The practical message is simple. Two files that look identical on paper can now be assessed at very different borrowing amounts depending on which lender sees them first. That was not the case two years ago.

Real-world examples: how the new rules change the numbers

Figures below are illustrative only, based on current lender servicing calculators at around 6.0% rates, the 3% APRA buffer, and typical HEM expense benchmarks. Your actual number depends on your lender, income mix, dependants, living expenses and other debts. None of this is personal advice — it is to show the shape of the change.

Example A — First-home buyer, $85,000 salary, $18,000 HECS-HELP

Chloé is 28, earning $85,000 a year, with an $18,000 HECS-HELP balance and modest expenses. Under the old rules, every lender was stripping roughly $225 per month out of her disposable income for HECS, giving her a borrowing ceiling of about $485,000.

Under the new rules:

• At NAB, because her balance is under $20,000, the HECS line is ignored entirely. Her new ceiling lifts to about $565,000 — an uplift of roughly $80,000.
• At CBA, whether her file qualifies depends on her repayment horizon; at $85,000 she pays ~$225/month, so the 18k balance clears in roughly 6–7 years. That falls outside "within 12 months" but inside 2–5 years only just, so CBA may apply the 1% buffer softening.

Same income. Same HECS balance. Different answer depending on the door she knocks on.

Example B — Couple, $150,000 combined, $20,000 HECS each

Alex and Sam have a combined income of $150,000 and each carry a $20,000 HECS-HELP balance. They were declined in Q4 2024 at a borrowing ceiling of about $680,000.

• At NAB in April 2026, both balances qualify as "$20,000 or less" and are excluded. Their borrowing capacity lifts to roughly $810,000 — an uplift of about $130,000 — and they can now reasonably target the three-bedroom townhouse they were priced out of 18 months ago.

Example C — Higher earner, $140,000 salary, $38,000 HECS-HELP

Priya earns $140,000 with a $38,000 HECS-HELP balance. Her file was previously tight against the old DTI limits.

• NAB's $20,000 rule does not help her — her balance is too large.
• CBA's rule does not fully help either — at $140,000, her marginal HECS repayment is around $8,700 + 17c × $15,000 = ~$11,250 a year, so a $38,000 balance clears in roughly 3.5 years. That qualifies for the 1% buffer concession, softening the effective HECS load by about 25–30% of its previous bite. Borrowing uplift: approximately $30,000–$45,000.

The pattern: the bigger your balance relative to your HECS repayment, the less the "near-term payoff" rules do for you — which is where broker lender-matching and voluntary repayment strategy earn their keep.

Should you just pay HECS off before applying?

It feels like the obvious move. Sometimes it is. Often it is not.

The test, in plain terms, is:

• If clearing HECS would push you into a policy bucket that unlocks a materially higher borrowing figure (for example, taking your NAB balance from $23,000 to under $20,000 so NAB excludes it), a voluntary payment before 1 June — the indexation date — can be a strong move.
• If clearing HECS would drain your deposit below the level that avoids Lenders Mortgage Insurance (LMI) or disqualifies you from the First Home Guarantee, the maths usually goes the other way. A few thousand dollars of saved HECS can cost you far more in LMI or in missing a government scheme. (See our explainer on LMI in Australia.)
• If your HECS is almost gone anyway (within 12 months), you are already getting CBA's full exclusion — paying it down early is effectively paying a debt with no interest, and your cash is almost always better in your offset.

Run the numbers both ways before you send anything to the ATO. This is the single most common mistake I see in this space — borrowers clear HECS, then realise they have tripped a different constraint somewhere else in the file.

Before you apply — the sequence that actually works

If HECS is a meaningful part of your file, do these in order.

1. Pull your exact HECS balance from MyGov. Screenshots are fine; your broker will need them. Include any 20% reduction already applied on 1 June 2025 and any indexation.
2. Estimate your compulsory repayment using the 2025-26 table above. That is the number that drives every lender's calculator.
3. Work out your payoff horizon at current income — "roughly when does this debt hit zero on auto-pilot?" This is the single variable that decides whether CBA will give you the full exclusion, the 1% buffer, or neither.
4. Do not make a voluntary repayment until you have modelled the outcome. The May–June window (before 1 June indexation) is the right one to reconsider this — not the week before you submit.
5. Match the file to the lender, not the other way round. A broker with live credit policy access across 30+ lenders can route your file to the one whose HECS policy, DTI tolerance and interest rate combine most favourably for you.
6. Confirm your post-change borrowing capacity in writing before you go to auction. Old pre-approvals issued before September 2025 may not reflect the new rules.

The traps that are still catching borrowers under the new rules

• Pre-approval drift. A pre-approval issued in early 2025 under the old HECS rules is stale. Many buyers are walking into 2026 auctions on numbers that no longer reflect their real capacity — in either direction.
• The DTI 20% cap. If your total debts are above 6x your gross income, you can still be declined or repriced even with HECS excluded. The policy is hitting investors and higher earners with large balances hardest.
• Refinance pricing. Switching to a "HECS-friendlier" lender is a real option, but the lowest rate and the most forgiving HECS policy are rarely the same lender. You are trading pricing for approval probability — and that trade is only worth making if it unlocks a scheme, a purchase, or avoids LMI.
• Future earnings assumptions. Lenders are conservative about bonuses, commission and expected pay rises. If your payoff horizon relies on a promotion you haven't received yet, evidence matters.
• Fixed rates. Sub-6% fixed rates are vanishing fast in April 2026 — Canstar's 13 April data shows only 29 lenders still hold a fixed rate under 6%, down from 83 at the start of the year. If you fix, fix for the right reason, not as a reaction to the HECS change. (Context in our RBA May 2026 watchlist.)

FAQ

Do lenders still see my HECS-HELP debt at all?

Yes. HECS-HELP appears on your tax return, your pay slips and your credit file. Lenders will always see it. What has changed is whether they reduce your borrowing capacity because of it — and in some cases, from 30 September 2025, they do not.

How much more can I borrow under the new APRA rules?

It depends on your lender, your balance and your income. Based on live April 2026 lender calculators, typical uplifts are in the $25,000 to $180,000 range. First-home buyers earning $70,000–$120,000 with HECS balances under $25,000 tend to benefit the most.

Is the 20% HECS debt reduction automatic?

Yes. The ATO applied it on 1 June 2025, before that year's indexation. If you had a HELP balance on that date, your MyGov already shows the reduced figure.

Which lender has the best HECS-HELP policy in 2026?

There is no single "best". NAB is strongest if your balance is $20,000 or less. CBA is strongest if your debt will clear within 12 months, and still useful at 2–5 year horizons thanks to the 1% buffer concession. Other lenders may suit better depending on income, expenses and the overall rate and fee structure. A broker runs the comparison across all of them at once.

Should I refinance my existing home loan because of the HECS rules?

Only if your existing lender declined a top-up or an equity release you needed, or your capacity fell short of a refinance at another bank. The HECS rule change is not, on its own, a reason to refinance — but it can be the final piece that makes a refinance viable if you were previously stuck.

Does the First Home Guarantee still work with HECS debt?

Yes. From 1 October 2025 the First Home Guarantee scheme has unlimited places, no income caps, and higher property price caps (for example NSW capital city and regional centres up to $1.5m, VIC capital up to $950k, QLD capital up to $1m, WA capital up to $850k, SA capital up to $900k, ACT up to $1m — confirm your postcode on the Housing Australia site). The scheme does not exclude buyers with HECS debt. It sits on top of the new APRA rules — your participating lender applies its own HECS policy to the same file.

What about the federal Help to Buy shared-equity scheme?

Help to Buy launched on 5 December 2025 through CBA and Bank Australia. CBA applies its HECS rules to Help to Buy files too, so if your HECS balance is within 12 months of being paid off, you can potentially benefit from both the shared equity contribution and the HECS exclusion on the same loan.

Talk to a broker who'll match the rule to your file

The new HECS-HELP rules are not a flat win for everyone — they are a policy lever, and the lender you choose decides whether that lever actually moves your borrowing capacity. As your broker, I look at your exact MyGov balance, your 2025-26 compulsory repayment, your payoff horizon, your deposit, any government schemes you qualify for, and the live credit policy at 30+ lenders — and I route the file to the one that gives you the strongest outcome, not the one with the sharpest headline rate.

If you were declined before September 2025, or your pre-approval is older than that, it is worth a fresh look. A lot has changed in six months.

• Contact me for a free, no-obligation review — 24-hour response, clear next steps in writing.
• Or start with the home loan application form if you are ready to lodge.
• Explore our services: first-home buyers, home loans, refinancing, self-employed loans.

Related reading

• How borrowing capacity really works in 2026
• How much deposit do you need in Australia now
• First Home Guarantee scheme: the 5% deposit path
• LMI explained for Australian borrowers
• RBA May 2026 decision: the mortgage watchlist

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General information only. This article does not take your objectives, financial situation or needs into account and is not personal advice. HECS-HELP rules, lender credit policies and APRA guidance can and do change — confirm the current settings with the lender or your broker before you rely on them. Credit assistance is provided by Azure Home Loans under the Credit Representative arrangement of our aggregator, in accordance with the National Consumer Credit Protection Act 2009 (NCCP) and ASIC's Responsible Lending Obligations (RG 209).