Clarifying the treatment of HELP debt obligations

To: All authorised deposit-taking institutions
 

APRA is consulting on targeted changes concerning how authorised deposit-taking institutions (ADIs) take into account Higher Education Loan Program (HELP) debt repayments when assessing home loan applications.

APRA has two objectives for this consultation process. First, APRA is seeking to provide additional regulatory clarity, which should support a more consistent approach across the banking system. Secondly, APRA is seeking to confirm the flexibility available to banks to consider the individual circumstances of borrowers who are expected to repay HELP debts in the near-term. APRA expects this will enable some borrowers to secure a home loan earlier, while maintaining prudent lending practices that underpin the safety and stability of Australia’s financial system. 

Background 

While APRA does not presently have any explicit prudential requirements relating to HELP repayments, current industry practice is to consider HELP debt obligations as part of residential mortgage serviceability assessments.¹ In APRA’s view, this is generally appropriate because HELP repayments are deducted from gross income and cannot be used to service a mortgage. Inclusion of HELP repayments in serviceability assessments helps ensure that lending decisions are prudent and reduces the risk of borrowers being unable to service their loan obligations or otherwise experiencing financial hardship. 

At the same time, APRA recognises that HELP repayments are unique to other debt obligations given they are income-contingent, meaning a borrower’s repayment obligations are determined by their income and not by the size of their debt or by interest rates. 

APRA’s proposals 

APRA proposes the following targeted adjustments: 

1. Removal of HELP debt from DTI reporting. APRA proposes an amendment to the reporting definition of DTI so that HELP repayments are not treated as debt for reporting purposes. This amendment recognises the income-contingent nature of HELP debts.
    
2. Treatment of HELP in serviceability assessments. APRA proposes to clarify in guidance that it is reasonable, by exception to internal serviceability criteria, for an ADI to remove HELP repayments where a borrower is expected to pay off their HELP debt in the near term through the compulsory repayments deducted from gross income. This exception would be on the basis that the borrower will largely be unaffected by the repayments over the course of their mortgage, given the near term and income-contingent nature of the debt. APRA expects exceptions to be determined by banks in accordance with their internal lending policies, risk appetite, and after considering the individual circumstances of a borrower. APRA would consider that exceptions for HELP debts that are expected to be fully repaid within 12 months would not be unreasonable.

APRA’s baseline expectation is that ADIs continue to consider HELP repayments in serviceability assessments, especially where the HELP debt is not expected to be repaid in the near-term. Additionally, consistent with APRA’s letter to industry on 9 June 2023, APRA expects ADIs to use exceptions to policy only if these exceptions are managed prudently and are limited.² APRA will continue its existing supervisory focus on entity changes to exceptions rates.

Draft versions of Reporting Standard ARS 223.0 Residential Mortgage Lending (ARS 223.0) and Prudential Practice Guide APG 223 Residential Mortgage Lending (APG 223) have been released alongside this letter.

Next steps

APRA invites feedback on the proposed amendments. Written submissions should be sent to PolicyDevelopment@apra.go.au by 20 March 2025 and addressed to: General Manager, Policy. All information in submissions will be available to the public on the APRA website unless a respondent expressly requests that all or part of the submission is to remain in confidence. 

Subject to feedback and following finalisation, APRA expects that the updated ARS 223.0 would become effective from 30 September 2025 with ADIs meeting the updated reporting requirements for the September 2025 quarter reporting period.

Yours sincerely

Therese McCarthy Hockey
APRA Board Member