Higher Education Contribution Scheme (HECS) debt is a crucial consideration for many Australian students. As you transition from education to the workforce, understanding how much you’ll repay and how it affects your financial situation, especially your borrowing capacity, is vital. This article breaks down the repayment thresholds for the 2025 financial year and explores the implications for your ability to borrow.

HECS Repayment Structure in 2025

In the 2025 financial year, the repayment of HECS debt is income-contingent, meaning the amount you repay is based on your income level. The following income thresholds and repayment rates are applicable:

• Income Below $50,000: 0% repayment
• Income Between $50,000 and $55,000: 1% repayment
• Income Between $55,000 and $60,000: 2% repayment
• Income Between $60,000 and $65,000: 2.5% repayment
• Income Between $65,000 and $70,000: 3% repayment
• Income Between $70,000 and $75,000: 3.5% repayment
• Income Between $75,000 and $80,000: 4% repayment
• Income Between $80,000 and $85,000: 4.5% repayment
• Income Between $85,000 and $90,000: 5% repayment
• Income Between $90,000 and $105,000: 6% repayment
• Income Between $105,000 and $120,000: 7% repayment
• Income Between $120,000 and $135,000: 8% repayment
• Income Above $135,000: 10% repayment

Example Repayments

To illustrate, here are a few examples of HECS repayments based on different income levels:

• Annual Income: $60,000
  • Repayment Rate: 2.5%
  • Annual Repayment: $1,500
• Annual Income: $80,000
  • Repayment Rate: 4%
  • Annual Repayment: $3,200
• Annual Income: $100,000
  • Repayment Rate: 6%
  • Annual Repayment: $6,000
• Annual Income: $150,000
  • Repayment Rate: 10%
  • Annual Repayment: $15,000

Impact on Borrowing Capacity

HECS repayments are generally deducted from your income before tax, which affects your net income. Lenders consider your income when determining how much you can borrow for mortgages or personal loans. Here’s how HECS repayments can impact your borrowing capacity:

1. Debt-to-Income Ratio: Lenders calculate your debt-to-income ratio (DTI) to assess your ability to repay loans. HECS repayments, although not classified as formal debt, reduce your disposable income. A higher DTI may limit the amount you can borrow.

2. Serviceability Calculations: Lenders assess your ability to service a loan, factoring in all recurring expenses, including HECS repayments. Higher repayments mean lower available income for other debt obligations, potentially decreasing your borrowing capacity.

3. Credit Score Impact: While HECS debt does not directly affect your credit score, high repayment levels may impact your financial behaviour and credit utilisation, influencing lender perceptions.

4. Affordability Assessments: When applying for a loan, banks perform affordability assessments based on your income and existing commitments, including HECS repayments. If repayments significantly reduce your disposable income, this could lead to lower loan approvals.

Understanding HECS repayments in relation to your income is essential for managing your finances effectively, particularly as you consider major investments like property. While repayments are structured to be manageable based on your income level, they can impact your borrowing capacity and financial planning.

It's advisable to consult with a financial advisor or mortgage broker to navigate the complexities of borrowing considering your HECS debt and to explore strategies for maximising your borrowing potential while managing repayments effectively.

Please note: Many of the comments in this article are general in nature and anyone intending to apply the information to practical circumstances should seek professional advice to independently verify their interpretation and the information’s applicability to their particular circumstances.