FHA Does Not Intend to Change Student Debt Constraint for Buyers

Student loan debt can be an obstacle for homebuyers in more ways than one. In some cases, income-driven repayment plans can lead to mortgage application denial.

While government-sponsored entities (GSEs) Fannie Mae and Freddie Mac have revamped their rules to allow borrowers to use their monthly payment amounts when applying for a loan, as opposed to an arbitrary amount based on the total debt. But, the Federal Housing Administration has not done the same. HUD spokesman Brian Sullivan elaborates to CityLab that despite urgings to do so, consideration of a rule change is not in the offing at all, in light of a 2013 bailout from the Treasury Department. “We made a policy decision not that long ago to treat deferred student debt as debt all the same," and that such repayment plans, "our rules just don’t contemplate that.”

Income-driven repayment plans are meant to help people who might otherwise struggle to repay student-loan debt—mostly people who earn between $20,000 and $60,000, according to Kristen Blagg of the Urban Institute. If a borrower makes regular payments of the agreed-upon amount for 20 to 25 years, based on their specific income-driven repayment plan, the outstanding debt will be forgiven.

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