How HECS debt changes impact Aussie homebuyers

The Government's major student debt reforms have officially passed the Senate - once signed off by the Governor General, it will wipe billions of debt off the table.

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

But while the financial relief is a good thing, the question on many people's minds 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 are the changes?

Key details:

1. A one-off 20 percent reduction to all outstanding Higher Education Loan Program (HELP/HECS) and student loan balances (seeing the average HECS holder get $5,500 slashed off their debt).
2. It will be backdated to the value of the debt prior to the 1 June indexation increase.
3. New changes to income repayment bands and amounts.

Last year, we saw an amendment to the indexation rule. 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 like we saw in 2023 (when the indexation rate hit 7.1 percent!). In 2025, indexation is set at 3.2 percent.

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

They have also changed how repayments are calculated. Previously, if you earned under $54, 435 - you were not required to start paying back your debt (although indexation is still added to it!), they have now increased the income threshold to $67,000.

This adjustment could result in smaller regular repayments to HECS and more take-home pay. Whilst this looks to help give more money in people's pockets, it will likely see you take longer to pay off the debt and thus increase the amount of 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 would see their debt reduced to $30,000 with the new 20 percent discount.

After the 3.2 percent indexation is applied on 1 June 2025, their new balance would become $30,960.

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

So, does it improve borrowing power?

We asked Chris Bates, Mortgage Broker and Founder of Alcove, how these changes might affect first-home buyers and their ability to borrow.

"As the repayment is based on a percentage of income, this does not increase capacity," he explained.

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

Because compulsory HECS repayments are tied to income rather than loan size, a 20 percent reduction in balance doesn't immediately boost borrowing capacity in most cases.

Still, Chris believes 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."

In other words, even if the numbers on paper do not move much, confidence might. And with some banks already reviewing how student debt affects serviceability assessments, we may see lenders updating their credit policies in 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 too.

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 percent 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 cash flow: 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 6 to 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.

• Top up your repayments: Clearing your HECS balance faster can free up your borrowing power in the future and remove a mental roadblock to other financial goals (generally this is a decision on if you want to bank it to have a higher deposit, or pay your HECS down to increase your borrowing capacity).
• 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 get your HECS paid off faster).
• 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.

According to Chris Bates, if the changes give first-home buyers more spending confidence and banks become more lenient around HECS debts, then yes, it could add fuel to the fire.

"They are currently spending every dollar they can get," Chris 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 how lenders respond in the coming months and whether further reforms are introduced.

A step in the right direction

There is no silver bullet to solving Australia's housing affordability crisis. And 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, know your balance will change once it's been fully signed off and implemented (which could take a little while yet).

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