How Student Loans Impact Buying a House in Australia

Picture this: you’ve finally ditched the textbooks, survived all-nighters, snagged a real job, and now the dream of owning your own place is dancing in your mind. But wait—the friendly reminder from your old pal, HECS-HELP, or any other student debt, keeps appearing every pay cycle. It’s not just a monthly inconvenience; it follows you when you want a loan for that first house, and for some people, it hangs around much longer than they expected.

Plenty of Australians wonder if their study debt will push their hopes of home ownership just out of reach. The short answer is: it depends, but it’s far too important to ignore if you’re thinking about a mortgage any time soon. Let’s pry open the surprisingly tangled relationship between student loans and housing, and see what it means if you’re weighing up whether HECS-HELP is holding you back from getting those keys.

How Student Loans Work in Australia

First, we should get clear about what student loans look like around here. In Australia, most student debt falls under the HECS-HELP or FEE-HELP schemes. These are not the nightmares of a U.S.-style private student loan. Interest rates aren’t sky-high—there’s no interest at all, just indexation, which went up a lot in 2023 (7.1%), then dipped to 4.7% in 2024. Instead of monthly bills, you pay via a percentage sliced off your wage once you hit a certain income, which now sits at $51,550 per year for the 2025-26 financial cycle. As you roll past that threshold, the more you earn, the bigger the slice—ranging from 1% up to 10% for high earners.

That sounds gentle at first—no angry collectors, no late-night letters—just a polite deduction by the ATO. A quick glance at a payslip and it’s barely noticeable for many. But over the last decade, Australians collectively owe over $74 billion in student loans, with the average balance rising with tuition, indexation, and more people heading to uni. Some folks clear their loans within six years, but plenty take much longer—especially if they work part-time or earn under the repayment threshold for a while. There’s no time limit to pay them off, so at first glance, it doesn’t feel urgent. But as you’ll soon see, the bank does care about that slice of your pay when you apply for a mortgage.

The Link Between Student Debt and Mortgages

Here’s where things get tricky. When you ask a bank to lend hundreds of thousands (or way more) for a house, they spend a lot of time crunching the numbers to make sure you can actually handle the loan repayments. Their favourite buzzword is “serviceability”—that’s just whether you can afford to pay them back, factoring in your income and any regular outgoings. And yes, the HECS-HELP repayment counts as a real expense in their eyes, same as child support or a car finance payment.

That means a student loan might lower the bank’s idea of how much you can safely borrow. If you’re repaying a big HECS-HELP debt on a mid-level salary, the bank sees less money left over in your budget every month, so they offer you a smaller home loan—even if you know you could scrape by. It’s basically their way of risk-managing; they don’t want you stretching yourself too thin. According to research from the Reserve Bank of Australia in 2022, students with more than $30,000 in HECS-HELP debt might see their borrowing power drop by as much as $60,000, which can mean the difference between a two-bedroom apartment and a one-bed rental near the city.

Banks look at your total income and subtract all your regular commitments, including that compulsory HECS-HELP contribution. Even though the loan won’t stop you dead in your tracks, it does put a little speed bump on the road to your first home—especially for single applicants, or anyone already juggling other debts or living in a spot where property prices are sky-high (looking at you, Sydney and Melbourne).

Data and Real-Life Examples

Let’s get specific. Take two people earning the same salary—say, $80,000. One has no HECS-HELP debt; the other owes $40,000 from a double degree. The one without the student debt might get approved for a home loan up to $550,000 (just an example—actual amounts will always depend on extra factors like credit cards, dependants, living expenses). But the person making HECS-HELP repayments might get approved for $20,000–$60,000 less, depending on how much goes from their pay to the ATO each payday. This difference could be the gap between getting a backyard or sticking with a balcony.

The following table shows average reductions in borrowing power for different salary ranges and HECS-HELP balances:

Banks won’t decline you just because you still owe on your student loan (unless it’s truly massive, five or six-figure stuff). But even a modest HECS-HELP balance nibbles at your home loan prospects. In some real cases, people with big student debts who also had credit cards or car loans in their name found out they couldn’t borrow as much as expected—even after years of careful saving for a deposit.

Location makes a difference, too. In Queensland and South Australia, where property prices can be lower, the effect of a student loan might be less severe than in Victoria or New South Wales, where every dollar counts. Every person’s situation is unique. But one survey by Finder in April 2024 revealed 22% of would-be first home buyers said their student loan was a major obstacle in getting their mortgage application over the line—not because the banks refused to lend, but because their borrowing limit was cut back hard.

Strategies for Getting a Mortgage with Student Loans

If you’re staring down both a HECS-HELP balance and the wild Aussie property ladder, what can you do? Here are some tricks and tips to boost your chances:

• Pay down any consumer debts—credit card balances and personal loans sting your borrowing power much more than HECS-HELP. Clearing them before applying puts you in a stronger position.
• Make voluntary extra repayments to your HECS-HELP if you’re close to paying it off. Even $5,000–$10,000 knocked off can help push your borrowing power up.
• Get detailed with your budget, and show the bank you have a record of regular savings. Lenders love to see a few months of consistent, surplus income—even if some goes toward your student loan.
• If you’re buying with a partner, your combined incomes will be assessed. If only one has a sizeable HECS-HELP, you might still hit your home price target together, as long as the other doesn’t have a bigger debt lurking.
• Ask for a pre-approval to know where you stand before you start house-hunting. No one likes nasty surprises or wasted weekends at open homes you can’t actually afford.
• First Home Owner Grants and stamp duty concessions still apply to you even if you have student loans—jump on all the help you can get, especially in QLD, where first home buyers get some sweet deals in 2025.
• Don’t panic about indexation—yes, it makes a difference to your HECS-HELP balance, but compared to high-interest personal loans, the effect is much softer over time.

One odd trick: don’t close old credit cards at the last minute if you’ve just cleared the balance. Banks like to see a longer credit history, so having some accounts open (at zero balance) may actually help your score. But don’t max them out!

What the Future Holds and What to Watch Out For

If you’re hoping things might get easier in the coming years, policy debates around student loans are heating up. There’s been a chorus of calls for the government to make indexation smaller or pause it entirely for low-income earners, but so far, only minor tweaks have been made. Still, more people are learning just how student debt can trip up plans to buy a home, so this issue is firmly on the radar.

There’s also been talk of banks updating how they consider HECS-HELP—some might get a bit more flexible, especially if you’ve got a strong record of regular savings and a steady job. Experts reckon this could eventually mean less of a hit to borrowing power for those with student debt. For now, though, banks still see that annual deduction coming out of your salary, so it’ll stay in their calculations for a while.

The big thing: don’t ignore your student loan. It may seem invisible most days, but when the time comes to apply for a home loan, it’s suddenly front and centre. If you don’t know your loan balance, you can check it anytime on myGov or your ATO online services. Keeping an eye on indexation each June and making a repayment plan—voluntary or compulsory—helps you stay ahead of surprises. And if the stress is getting to you, a quick chat with a good mortgage broker, or even your HR/payroll team at work, can demystify your situation pretty quickly.

To wrap it up, student loans don’t slam the door on a home of your own in Australia, but they do make that door just a bit heavier to push open. Knowing where you stand—and working your numbers before house hunt begins—makes all the difference. The dream is absolutely still possible, debt and all, especially if you tackle each step with eyes open and a bit of strategy tucked in your back pocket.