Finance
HECS-HELP and your borrowing capacity, what the 2025 reforms actually changed
The one-off 20% cut to HELP debts and the new marginal repayment thresholds materially move borrowing power. We show the numbers that flow through to serviceability.
HECS-HELP is one of the biggest deductions banks apply before calculating your borrowing capacity. Two 2025 reforms have changed the picture: a one-off 20% cut to outstanding HELP balances (applied before the 1 June 2025 indexation), and a new marginal repayment system that lifts the tax-free threshold from around $54k to $67k and only charges the compulsory repayment on income abovethe threshold, not on the entire salary.
For a 32-year-old on $110k with a $40k HELP debt, the reforms move borrowing capacity by $60,000–$90,000 depending on lender policy. That’s not a rounding error.
What changed
- 20% debt reduction. A one-off cut applied to HELP, VET Student Loan and similar debts before the 1 June 2025 indexation date. A $50,000 balance became $40,000 before indexation.
- Marginal repayment system (from 1 July 2025). No compulsory repayment until income exceeds $67,000. Above that, repayments are calculated on the excess only, at 15% up to $125,000 and 17% above.
- Indexation reform. Indexation is now the lower of CPI or WPI (wage growth), preventing the ugly 2023-style outcome where debts grew faster than wages.
How this flows through to a bank’s serviceability model
Lenders read your compulsory HELP repayment straight off your PAYG summary and treat it as an unavoidable monthly commitment. That reduces the surplus income they capitalise into a maximum loan. A smaller HELP debt and a lower compulsory repayment translate directly into more borrowing power, subject to APRA’s 3% buffer sitting on top.
Estimated borrowing capacity uplift from the 2025 HELP reforms
Additional borrowing capacity ($)
Three things that trip people up
- Not all lenders have updated their calculators. Some still hard-code the old flat-percentage repayment. Your broker matters: two lenders can give a $100k difference on the same file just from HELP treatment.
- Voluntary repayment doesn’t always win. Paying $10k off your HELP shifts your borrowing capacity by maybe $20k–$25k. That same $10k in an offset account against a home loan may save more, or preserve deposit for a bigger investment. Model both.
- The reforms are one-off. The 20% cut is not repeated. Future HELP debts are still fully repayable and still fully deducted in serviceability.
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Written & reviewed by
The NOVAQ founders
Every NOVAQ article is written or reviewed by our founders, both Chartered Accountants who actively invest in Australian property. Not journalists, not interns.
Shreyas Doshi
Co-Founder · Chartered Accountant
15+ yrs in international tax, compliance, structuring and advisory across Deloitte, PwC and a large multinational mining company. Multi-state personal portfolio under different structures.
Yuvraj Kapadia
Co-Founder · CA, CPA, SMSF Specialist
ASIC-registered SMSF Auditor, Tax Agent, licensed Finance & Mortgage Broker and Buyer's Agent. Multi-state personal portfolio under different structures.
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