HECS HELP Debt
A debt owed to the Commonwealth for higher education tuition, repaid through the tax system once income exceeds a threshold.
In detail
HECS HELP is not a traditional loan. It is repaid through additional tax withheld on income once the borrower earns above a compulsory repayment threshold. The repayment percentage increases in steps as income rises, reaching 10 per cent for very high earners. Balances are indexed to inflation each year.
Lenders include HECS HELP repayments as an ongoing commitment in serviceability. Because the repayment is tax withheld rather than a separate debit, some borrowers are surprised to learn it affects their borrowing capacity. Lenders typically include both the actual HECS HELP repayment and count the balance in DTI calculations.
Why it matters for brokers
A large HECS HELP balance can materially reduce borrowing capacity, particularly for higher income earners where the compulsory repayment percentage is significant. Brokers need to account for the current ATO repayment rate schedule accurately and explain the impact clearly to clients.
Example in practice
A graduate earning above the compulsory repayment threshold with a $40,000 HECS HELP balance may have several thousand dollars a year withheld from their salary. The lender includes this as a commitment in serviceability, which can materially reduce borrowing capacity compared to a borrower on the same salary without a HECS HELP debt.
Related terms
Debt to Income Ratio (DTI)
Total debt divided by gross annual income, used by lenders as a supplementary risk measure alongside serviceability.
Serviceability
A lender assessment of whether a borrower can meet loan repayments from their income after accounting for expenses, existing debts, and a buffer.
Credit Card Limit
The maximum amount a credit card holder can spend on a card, whether or not the balance is drawn.
Personal Loan
An unsecured or secured loan for a fixed amount repaid over a set term with regular repayments.
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