Biden Administration Will Make It Easier For Student Loan Borrowers To

The Biden administration is easing federal mortgage lending rules to give student loan borrowers a better shot at being approved for a home mortgage. The Federal Housing Administration (FHA) announced changes to its student loan calculations that should make it easier for student loan borrowers to obtain mortgage approval. The policy change centers on the removal of the current requirement that FHA mortgage lenders calculate a borrower’s monthly student loan payment as 1% of their outstanding student loan balance for loans that are not fully amortizing or are not in repayment. This includes borrowers who are in an approved deferment or forbearance, or who are only required to make relatively small payments under an income-based repayment plan. For example, a federal student loan borrower with a $100,000 outstanding balance, an income of $60,000 per year, and a family size of 3 may only have a monthly payment of $245 per month under approved income-driven repayment plans. But an FSA-backed mortgage lender may “assume” that the borrower actually has a payment of $1,000 per month due to the FHA’s longstanding underwriting rules that apply 1% of the outstanding balance. This could prevent the borrower from getting a mortgage, depending on their overall credit profile and other debt obligations. The new FHA policy will allow mortgage lenders to use a borrower’s actual monthly student loan payment amount, even if it is below the traditional amount of 1% of the total balance. And if a student loan borrower’s calculated payment is $0 (which is possible under an income-driven repayment plan), the mortgage lender will automatically apply 0.5% of the outstanding student loan balance as an assumed payment, rather than 1%.“Homeownership is the cornerstone of the American Dream, and the best way to build generational wealth. I am proud that FHA is taking action to make it easier for borrowers with student loan debt to qualify for a federally insured mortgage,” said Housing and Urban Development Secretary Marcia L. Fudge in a statement. “This new policy will make a big difference for individuals throughout our nation and is another step in our mandate to promote equity and opportunity for homeownership.”Advocates praised the policy change as an important step in addressing racial inequalities. According to the National Center for Education Statistics (NCES), 77.7% of Black students borrow federal student loans to pay for a higher education — significantly higher than the national average for all students (60%) and for white students (57.5%). Black students are also more likely to attend for-profit institutions, which are often accused of deceptive and predatory conduct.“It is critical that we reflect on all of the ways that racial discrimination is woven into our society, especially in our housing system.

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