Student Loan Repayment Plan for Mortgage Loans
Today we are going to talk about every student’s least favorite subject, their student loans. I also recognize that this issue has become quite a hot button topic so I will attempt to tap dance around both sides of the political aisle and stick to the facts. The fact is those can be difficult to find depending on where the loan holder is finding the information so today we are going to attempt to provide some clarity.
September 1, 2023 the COVID student loan forbearance is a thing of the past and despite new strains and new cases and new blah blah blah whether we agree or disagree, one thing is true, student loans are due. My team has spoken with dozens if not hundreds of clients in the past year that were 100% convinced that their student loans were going to be forgiven and for some that has actually happened, but others are in for a rude awakening if they aren’t properly armed with the right information.
We will link the full article for the SAVE Plan here but also wanted to give you a summary that you can pass along to your borrowers to ensure that you don’t have a random 90 day late popup on their report when you repull before closing. Short version the Saving on a Valuable Education (SAVE) Plan calculates a student loan payment based on income and family size. The SAVE plan will replace the REPAYE plan (Revised Pay As You Earn) and anyone who was enrolled in the prior plan will automatically be migrated over to the SAVE plan. The biggest difference is under the previous plan monthly payments were generally equal to 10% of the payee’s discretionary income divided by 12 months. Under the new plan that number is 5% of the discretionary income divided by 12 AND they have also increased the income exemption from 150% of the poverty line to 225%. If this doesn’t make some of you ask, “should someone living at 180% of the federal poverty line be buying a home right now?” then I will only assume that you stopped reading after the first paragraph but if you’re still with me, I will say that is a very fair question. It still doesn’t change the fact that anyone with looming student loan payments coming due can certainly benefit from this information.
There are currently half a dozen repayment options available to borrowers as of now; standard, graduated, extended, SAVE, pay as you earn, income based, income contingent and income sensitive. Who would have thought that a federal bureaucracy could have turned one option into 8 or more different flavors but with students graduating with a record number of scissors, thankfully they will still have plenty of red tape to keep them busy. All jokes aside, one thing that we hope everyone walks away with into their next client conversation with, STUDENT LOANS NEED TO START BEING PAID and if they don’t do it soon, their credit will start to be impacted regardless of income, desire or ability to repay.