HECS debt changes: What they mean for home-buyers

The Albanese government’s student loan changes have passed the Senate, meaning that – once signed off by the Governor-General – millions of dollars in debt will be wiped.

This will be welcome news for the three million people who have a HELP/HECS loan.

But while the financial relief is a good thing, the question some may ask is: Will this help me get into the property market sooner?

Whether you are trying to buy your first home, strengthen your borrowing capacity, or even just make room in the budget to invest, these changes could shift the landscape in more ways than one.

What has changed?

Key details:

1. A one-off 20 per cent reduction to all outstanding Higher Education Loan Program (HELP/HECS) and student loan balances (the average debt of HECS holders will reduce by $5500);
2. It is backdated to the value of the debt prior to the June 1 indexation increase;
3. Changes to income repayment bands and amounts.

Last year, the indexation rule was amended. Indexation is now based on either: The wage price index (WPI), or the consumer price index (CPI) – whichever is the lower.

This means debt will no longer be indexed at inflationary highs as in 2023 (when the indexation rate hit 7.1 per cent). In 2025, indexation is set at 3.2 percent.

Together, these changes will remove nearly $20 billion in student debt. The 20 per cent discount alone will apply automatically to more than three million Aussies.

How repayments are calculated has also changed. Previously, those who earned $54,435 were not required to start paying back debt (although it was still indexed). That income threshold has risen to $67,000.

This adjustment could result in smaller regular repayments to HECS and more take-home pay. While this appears to help peeople keep more money in their pockets, it also likely means the debt takes longer to pay off and there is increased overall indexation (aka cost) to you as a HECS holder over the life of that debt.

What does it look like in practice?

For example, someone earning $100,000 a year with a HECS balance of $37,500 has had their debt reduced to $30,000 with the new 20 per cent discount.

After the 3.2 per cent indexation was applied on June 1, 2025, their new balance became $30,960.

This is a clear win on previous years on both the overall reduction and the lower indexation. And for someone entering or already navigating the property market, it may have some flow-on effects worth considering.

What does it do to borrowing power?

We asked mortgage broker Chris Bates, the founder of property advisory firm Alcove, how the changes might affect first-home buyers and their ability to borrow.

“As [mortgage] repayment is based on a percentage of income, this does not increase capacity,” he said.

That might be surprising to some. While it is easy to assume a smaller debt means better loan approval odds, the reality is more nuanced.

Because compulsory HECS repayments are tied to income rather than loan size, a 20 per cent reduction in balance means no immediate boost to borrowing capacity for most people.

However, Bates thought the perception of relief could influence buyer behaviour.

“If it becomes widespread that banks will not need to include HECS for first-home buyers, then yes, they will spend it on property as they are currently spending every dollar they can get due to tight borrowing capacity,” he said.

In other words, even if numbers on paper don’t move much, confidence might. And with some banks already reviewing how student debt affects serviceability assessments, we may see lenders update their credit policies over time to increase overall borrowing capacity if someone is close to paying off their student debt.

The emotional impact

Beyond the technicalities of loan-servicing calculators, there is a psychological shift happening.

For many Australians, HECS debt has long been a background burden. It quietly erodes pay packets, grows through indexation and delays financial progress. Reducing it by 20 per cent overnight is not just a financial change, it’s an emotional one.

That sense of relief can fuel new decisions. The confidence to start saving for a deposit, to apply for a pre-approval or to see yourself as a buyer instead of just a renter.

And that matters. Because mindset is a critical factor in long-term financial growth.

What you can do next

Whether you are actively saving for a home or just reassessing your financial priorities, here are three practical steps to take now:

1. Revisit your budget and cashflow: With a lower HECS balance and potentially reduced repayments, look at how much extra you can now set aside monthly. This could go towards your deposit, mortgage repayments, or other financial goals.
2. Speak to a mortgage broker: Not all lenders treat HECS debt the same way. Some may take a more generous view of reduced student debt than others (especially if you are close to having it paid off). A broker can help assess your updated position and match you with a lender that fits your circumstances.
3. Get your pre-approval documents in order: If a property purchase is on the cards in the next six-12 months, use this moment to get financially ready. Check your credit score, reduce other debts if possible and make sure your savings patterns support your loan application.

What if you aren’t buying yet?

Even if a property purchase is not on your immediate horizon, there are still smart ways to make the most of these changes.

1. Top up your repayments: Clearing your HECS balance faster can free up future borrowing power and remove a mental roadblock to other financial goals (generally this comes down to banking the money for a higher deposit, or paying down HECS to increase borrowing capacity).
2. Redirect savings: With smaller compulsory repayments, you might be able to direct more funds into your emergency savings, deposit goal, superannuation or other investments (or use it to pay off your HECS faster).
3. Strengthen your financial foundation: Use the extra breathing room to reduce credit card debt, build better money habits or set goals that align with your future plans.

Could this push prices higher?

It is a fair question, especially in a market where prices have already been climbing despite high interest rates and inflation pressures.

Bates said if the changes gave first-home buyers more spending confidence and banks became more lenient about HECS debts, then it could add fuel to the fire.

“They are currently spending every dollar they can get,” Bates said. “If HECS becomes less of a factor, they will spend that on property.”

This could be particularly relevant in more affordable markets where even small shifts in borrowing power or sentiment drive competitive activity.

But it is also worth noting that while the changes are helpful, they are not transformational for every buyer. The real impact may depend on the response of lenders in coming months and whether there are more changes.

A step in the right direction

There is no silver bullet to solving Australia’s housing affordability crisis. Student debt relief alone is not going to unlock the door to home ownership for everyone in a market that continues to rise.

But this is a meaningful change. One that recognises how education debt can quietly hold people back, and offers a chance to rebalance.

If you have a HECS balance, remember it will change once it’s been signed off and implemented.

But it is time to consider what this might unlock for you, whether it is faster progress toward a financial goal, or simply one less barrier to buying a property.

This article first appeared on View.com.au. Read the original here