APRA proposes updated approach to treatment of HELP debts

The Australian Prudential Regulation Authority (APRA) has begun consulting on proposed changes to how banks treat Higher Education Loan Program (HELP) debt repayments when assessing home loan applications.

As the prudential regulator of the Australian financial system, APRA is responsible for ensuring banks are managing their risks appropriately to protect the safety of deposits and the stability of the financial system. 

APRA has no specific rules or guidance in relation to HELP repayments beyond asking banks to include HELP debts when reporting data on debt-to-income ratios. However current industry practice is for banks to consider HELP debts when assessing a home loan applicant’s ability to service a loan. 

While APRA believes this is generally appropriate, APRA also acknowledges that HELP debts are different to most other debt obligations because a borrower’s repayment obligations are determined by their income and not by the size of their debt or interest rates.  

To provide clarity to banks and borrowers, APRA has today written to banks seeking feedback on the following targeted adjustments:

• Removing HELP debts from debt-to-income reporting; and
• Clarifying that banks may exempt a loan applicant’s HELP debt from their serviceability assessment in cases where a borrower is expected to pay off their HELP debt in the near term.

APRA Member Therese McCarthy Hockey said: “APRA appreciates the important role of the Australian banking system in extending finance to creditworthy borrowers as well as the increasing difficulty many homebuyers face purchasing a home. 

“The changes we are proposing today should support a more consistent approach across the sector by confirming the flexibility available to banks to consider the individual circumstances of borrowers with HELP debts. They may also help make it a little easier for some borrowers with HELP debts to purchase homes at an earlier time.”

A letter outlining the consultation is available on the APRA website at: Clarifying the treatment of Higher Education Loan Program debt obligations.

Subject to feedback, APRA expects the final changes to be formally incorporated into APRA’s prudential framework in the second half of the year.