Student loan disaster: Is there hope?
Student loan debt is a crisis! Americans owe more in student loans than they do on credit cards.
America’s college grads owe 1.7 trillion dollars on their student loans, as of January 2021.1 This is a substantial debt load for the people attempting to qualify for a mortgage. Additionally, over 30% of student loans are in default, late, or simply unpaid years after graduation.2
This impairs credit scores, further reducing those potential borrowers’ ability to qualify for a mortgage.
Student loans are treated the same as other types of installment loans or revolving credit accounts (think car loan or credit cards) on your credit score, and your ability to qualify for a loan. This affects the future of many people with student loans because their credit score can boost or sink an application for a home mortgage. And the monthly payment on the student loan reduces the amount of loan for which they qualify.
A study by an advocacy organization3 found students with outstanding student loan payments were 36% less likely to buy a house. Many times, this is because of debt load and/or deteriorated credit scores as a result of the debt load.
Today, there is good news to help improve qualifying for a mortgage for people with student loans. The Federal Housing Administration (FHA) has updated and enhanced guidance on how and when student loan payments may be reduced or excluded from the monthly debt calculation.
Reducing or removing student loan payments from the monthly debt calculation could increase the amount of loan you qualify for. Or it could mean the difference between qualifying and not qualifying for the home loan you are requesting.
1 Scholarship America
2 Abigail J. Hess, CNBC Make It
3 Scholarship America