What's changing with HECS in 2025?
HECS has hit the headlines multiple times this year, so let’s take a look at what HECS is, what’s changing, and how that might impact you.
What is HECS?
HECS stands for Higher Education Contribution Program. HELP stands for Higher Education Loan Program.
Sometimes it’s called HECS-HELP. We’re just going to call it HECS which is what most of us know it as.
HECS allows you to borrow the fee associated with your education, for example a TAFE course or Uni degree.
You don’t have to make repayments until you earn over $54,435 (current as of May 2025).
HECS repayments are not calculated off the outstanding balance, they are calculated as a percentage of the income you earn. The percentage gradually increases as your income increases.
For example, when you’re earning the lowest tier you pay 1% of your income. When you get to the highest tier, you pay 10% of your income. You can find the full repayment table here.
HECS debt is not like a normal loan, it is not charged interest. Instead, on the 1st of June each year indexation is added to the outstanding amount. Indexation is designed to keep up with inflation.
What’s changing?
During the election campaign, Labor promised a one-off HECS debt reduction of 20%. This still needs to be legislated to come into effect.
This means that for a debt of $100,000, it would be reduced by $20,000 down to $80,000.
The reduction will be calculated on the outstanding balance as of 1 June 2025.
Out of the 3 million Aussies with a HECS debt, 70% are under the age of 35.
How will this impact my borrowing capacity?
In simple terms, your borrowing capacity is based on your income minus your expenses. Because your HECS debt repayment is based on your income and not on your balance, your expense will remain the same and your borrowing capacity will not be impacted.
However, there are further proposed changes to HECS in the 2026 financial year which would see the threshold for mandatory repayment increased to $67,000 and the repayment amount would also be lowered. If these measures pass legislation, they will have a positive impact on your borrowing capacity by decreasing your expenditure.
If we dive a little bit deeper into your borrowing capacity, there is another measure that we use to determine your maximum loan called debt-to-income (DTI ratio). This effectively limits your maximum loan amount to 5-6 times your total income. In 2024, banks were directed to include your outstanding HECS loan in the DTI calculation which could impact your borrowing. This measure has recently been walked back at the suggestion of APRA.
Other HECS news
In February 2025. APRA suggested banks could exclude HECS debt from their calculations when the debt is going to be repaid “in the near term”. The logic around this is that you should not need to consider repayments in a 30 year loan term that will only be relevant for another year.
So far, only one lender has amended their policy to allow for the exclusion of HECS debt that will be repaid within the first year.
How can we help?
We’re often asked by our clients if they should pay off a HECS debt to get a home loan. It’s impossible to say without looking at the bigger picture of your financial position, so we encourage you to reach out and start the obligation-free process. We have a chat, gather some documents and information, and then we can provide you with advice about your borrowing capacity and how your HECS fits in.