New Student Loan Plan Eases Homeownership

A new, more affordable repayment plan for federal student loans, known as the Saving on a Valuable Education (SAVE) plan, could not only reduce borrowers’ monthly payments but also make it easier for them to qualify for a mortgage. This plan, rolled out by the Biden administration, aims to alleviate the financial burden of student loan debt, which has been a barrier for many aspiring homeowners.

For many student loan borrowers, especially millennials, the burden of education debt has delayed their ability to purchase a home. The SAVE plan’s lower monthly payments could significantly improve borrowers’ debt-to-income ratios, a crucial factor in mortgage underwriting. Under the SAVE plan, borrowers could see their monthly student loan payments reduced by half, or even down to $0, making homeownership more attainable.

One of the key advantages of the SAVE plan is its impact on debt-to-income ratios. By reducing monthly student loan payments, the plan effectively lowers the debt burden on borrowers, making them more attractive candidates for mortgage lenders. Additionally, the plan increases the income exempted from payment calculations, further reducing the debt burden for eligible borrowers.

Starting in July, the SAVE plan will reduce the required monthly payment for undergraduate student debt from 10% to 5% of discretionary income. This change will significantly lower monthly payments for many borrowers, potentially freeing up more funds for saving toward a down payment on a home. However, some mortgage lenders may not consider a $0 monthly student loan payment in their underwriting process, which could still impact borrowers’ ability to qualify for a mortgage.

Despite potential challenges with lenders, the SAVE plan represents a significant opportunity for student loan borrowers to improve their financial standing and move closer to homeownership. By reducing monthly payments and potentially increasing savings for a down payment, the plan could help more individuals achieve the dream of owning a home.