Can HECS Hurt Your Borrowing Capacity? Mar 11, 2021 | Blog, Business Loan Broker The High Education Contribution Scheme (HECS) or Higher Education Loan Program (HELP) is effectively a Government loan that enables people to afford the costs of higher education. The program works by allowing people to pay back their student loans at a time in the future when they are earning enough money to comfortably cover the payments. In the last decade, the cost of higher education has skyrocketed, and this has forced many students to take up a program like HECS or HELP, so they can continue their education. Once they have completed their education, most people never really think about the impact of HECS debts, as it is normally something that is taken care of at tax time. The repayment rates are generally quite low and not overly burdensome for most people. However, what many people don’t realise is that these student debts will have an impact on your ability to borrow money when the time comes to buy a house. This can be particularly impactful for people like first home buyers, or even those on high incomes, as the repayment rates increase sharply. When banks and lenders assess your ability to service debt, what they are doing is determining your normal income and expenses, with the understanding that you will be able to service debt with spare income. If you are carrying a large amount of student debt that you are required to pay back by law, it can weigh heavily on your ability to borrow. For a lot of people, a few hundred dollars per week can be the difference between buying a home and not being able to get finance. For that reason, it is very important to understand what your student debt looks like and the level of repayments that you’re required to be making. This is the current repayment table for the 19/20 financial year. Taxable Income Repayment rate Below $45,881 Nil $45,881 – $52,973 1.0% $52,974 – $56,151 2.0% $56,152 – $59,521 2.5% $59,522 – $ 63,092 3.0% $63,093 – $66,877 3.5% $66,878 – $70,890 4.0% $70,891 – $75,144 4.5% $75,145 – $79,652 5.0% $79,653 – $84,432 5.5% $84,433 – $89,498 6.0% $89,499 – $94,868 6.5% $94,869 – $100,560 7.0% $100,561 – $106,593 7.5% $106,594 – $112,989 8.0% $112,990 – $119,769 8.5% $119,770 – $126,955 9.0% $126,956 – $134,572 9.5% $134,573 and above 10% If your income falls below $45,881, you’re not required to pay back any of your HECS debt. This is the category into which people who are new to the workforce will most likely fall. By the time you are earning around $100,000 per year, you will be required to pay back approximately 7.5% of the total outstanding student debt. For a HECS debt of around $50,000, that could see your borrowing capacity reduced by anywhere from $75,000 – $100,000, which is quite significant if you’re looking at buying your first home. The reality is that the majority of Australians will have some form of student debt that they are required to pay back. The best option is to always speak to your mortgage broker and get a clear picture of your borrowing capacity well before you even look to put in an offer on a property. That way, regardless of your situation and current income and expenses, you will know where you stand. Why YFA? Our motto has always been “Honesty” and Over 20 years, we have always believed that understanding the customer requirement should be the first priority. We are very passionate about helping individuals and families to identify financial goals with the correct focus on their plans for the long run through us home loan consultant. We feel proud and blessed to win awards because of successfully assisting people to achieve financial success. What makes us stand out from others is the utmost trust from our clients who have trusted us. We have always aim to provide updated yet useful blogs by adhering to traditional values of transparency and integrity, while continuing to bring steady and consistent performance over the long term. Our best home loan broker is always there to assist you. We love going beyond the bolts of financial crisis in an easier manner just to help people believe that money never blocks their happiness. Our mortage experts try to the best of our abilities to be a sane, and trusted entity in the sector of Wealth Management via providing services in Finance & Insurance. Credit Rep Number – 418883 | ABN – 8119516623 Submit a Comment Cancel replyYour email address will not be published. Required fields are marked *Comment Name * Email * Website Save my name, email, and website in this browser for the next time I comment.