A HECS-HELP debt does not work like a credit card or a car loan, so it is easy to assume it has nothing to do with whether you get approved for finance. It does. The debt itself rarely blocks an application, but the compulsory repayment attached to it quietly lowers the income a lender is willing to work with. If you are weighing up a car loan while you still carry a study debt, it helps to know exactly how that repayment is worked out and where it shows up in a lender's numbers.
What a HECS-HELP debt actually is
HECS-HELP is part of the Higher Education Loan Program, the government scheme that covers tuition for eligible students and is repaid later through the tax system. It sits alongside other study and training loans such as VET Student Loans and the Australian Apprenticeship Support Loan, and the Australian Taxation Office treats them all under one set of repayment rules.
Two features make it unusual. First, it charges no interest. Instead the balance is indexed once a year to keep pace with the cost of living, so it grows in nominal terms but not through an interest charge. Second, you do not choose your repayments. Once your income passes a set threshold, a compulsory repayment is calculated at tax time and collected through your pay. That automatic, income-linked repayment is the part that matters when you apply for a car loan.
Why a study debt affects your car loan
Lenders do not approve a car loan on your headline salary. They work out what you can realistically afford after tax, living expenses and existing commitments, then check that a new repayment still fits. A compulsory HELP repayment reduces your take-home pay before that assessment even begins, so it lowers the pool of income the lender is measuring the loan against.
The practical effect is that two applicants on the same gross salary can have different borrowing power if one carries a study debt and the other does not. It is not a black mark on your file and it is not the same as a default or a missed payment. It simply trims the net income figure, which is why a study debt can shave a little off the amount a lender will advance. You can get a sense of the size of a repayment using a borrowing power and repayment calculator before you talk to anyone.
The 2025-26 marginal repayment system
The way compulsory repayments are calculated changed from the 2025-26 income year. Under the old system, once your income crossed a threshold you paid a flat percentage of your entire income. Crossing a threshold by a single dollar could lift the rate applied to the whole lot, which created a sharp step up in what you owed.
From the 2025-26 income year the ATO uses marginal rates instead. Your compulsory repayment is now worked out only on the income above the minimum threshold, not on every dollar you earn. That is the same logic income tax already uses, and for many people on lower and middle incomes it means a smaller compulsory repayment and slightly more take-home pay, which feeds straight back into serviceability.
The thresholds and rates that apply
For the 2025-26 income year the compulsory repayment brackets are:
- Repayment income up to $67,000: nil
- $67,001 to $125,000: 15 cents for each $1 over $67,000
- $125,001 to $179,285: $8,700 plus 17 cents for each $1 over $125,000
- $179,286 and over: 10 per cent of your total repayment income
The thresholds move up for the 2026-27 income year, when the first repayment does not start until $69,528. The brackets become 15 cents for each $1 over $69,528 up to $129,717, then $9,028 plus 17 cents for each $1 over $129,717 up to $186,050, then 10 per cent of total repayment income at $186,051 and over.
A worked example shows the scale. On a 2025-26 repayment income of $85,000, the compulsory repayment is 15 cents for each dollar above $67,000. That is $18,000 above the threshold, so $2,700 for the year, or roughly $225 a month withheld from pay. That $225 is money a lender no longer counts as available for a car repayment, which is the whole reason a study debt is worth understanding before you apply.
What counts as repayment income
Repayment income is not just your salary. The ATO adds several amounts together to work it out:
- Your taxable income, excluding any released First Home Super Saver amounts
- Reportable fringe benefits, whether or not your employer is exempt
- Total net investment loss, including net rental losses
- Reportable super contributions
- Exempt foreign employment income
This matters if you salary package, negatively gear a property or make extra super contributions, because those can lift your repayment income above your take-home salary and trigger a larger compulsory repayment than you expected. It is worth checking your likely repayment income before you assume where you sit in the brackets.
Indexation and your balance
Indexation is applied on 1 June each year to the part of your accumulated debt that has been unpaid for more than 11 months. In 2026 the rate was 2.8 per cent, the lowest since 2021. The rate is set at the lower of the Consumer Price Index and the Wage Price Index, so it tracks either prices or wages, whichever is gentler.
Indexation grows the balance, but it does not directly change your compulsory repayment, which is driven by your income and the thresholds above. For a car loan application the balance is rarely the sticking point. The repayment rate is what shapes your net income, so a large balance and a small balance affect your borrowing power in much the same way if your income is the same.
What you can do before you apply
You cannot switch off a compulsory repayment while you still have income above the threshold, but you can go in with clear numbers. Check your current balance and your likely repayment income through the ATO app or myGov so you know what will be withheld. If you have the cash and want to reduce the balance, a voluntary repayment made before the 1 June indexation date reduces the amount that gets indexed, though it will not change the compulsory repayment tied to your income.
When you shop for finance, compare offers on the same basis and look at current car loan rates so you are judging lenders on price rather than guesswork. Different lenders weigh a study debt slightly differently, so it can be worth seeing how a few finance providers treat your situation. If you already have a car loan and your income or study debt has shifted, it may also be worth checking whether a refinance improves your position. The debt is a normal part of many Australians' finances, and knowing how the repayment works turns it from a surprise into a number you can plan around.
