What Student Loan Forgiveness Could Do For Prospective Homebuyers
06.28.2022 | Category: Homebuying
Student loan debt is now one of the largest loan balances for borrowers looking to buy a home. And while student loans may seem like an impossible debt to repay, there are programs in place to help borrowers buy a home despite their debt.
According to Experian, total student loan balances grew 1.8% in 2021 totalling $1.6 trillion nationwide. While slower than the 12.1% balance growth in 2020 due to federal loan pauses, overall student loan debt now accounts for an average of $39,487 per borrower.
To address student loan debt and the uncertainty of the economy throughout the pandemic, the U.S. Department of Education recently extended the student loan payment pause through August 31, 2022. However, with the deadline looming near, many student loan borrowers are looking for additional ways to alleviate the financial burden of their academic loans.
Federal programs aimed to help student borrowers
If your student loans are really hindering your ability to save for the down payment of a home, you may qualify for a number of programs enacted to help borrowers manage their student loan debt.
First, if you were a student of a school that was accused of mishandling finances, you may be eligible for loan forgiveness by the federal government. According to the Education Department, an estimated 690,000 borrowers have had a total of $7.9 billion dollars in student loans canceled through discharges due to school closures and financial negligence.
Second, if you are permanently disabled and receiving federal disability benefits, you may also qualify for student loan forgiveness. Under this program, more than 323,000 borrowers were automatically awarded student loan discharges totaling $5.8 billion.
Lastly, you may also be eligible for student loan forgiveness if you currently work for a US federal, state, local or tribal government or a non-profit organization including the US military you may qualify for student debt cancellation through the Public Service Loan Forgiveness (PSLF) program.
State-led student loan forgiveness programs for eligible borrowers
According to Investopedia, 48 states and the District of Columbia offer at least one student loan forgiveness program with Mississippi and North Dakota being the only two states that don't have dedicated student cancellation options as a state benefit.
Most state-led loan forgiveness plans are created to help prospective borrowers within specific professions to attract students seeking career pathways in that particular state. For example, states with a need to attract doctors, may offer tuition assistance or reimbursement if they decide to practice in that state for a certain number of years.
Some programs also help provide loan forgiveness for historically marginalized or indigenous populations. These are often given to students who qualify based on grants or scholarships. Be sure to check with your state for specific application guidelines and requirements.
Public calls for more programs persist
As pandemic related student loan pauses come to an end, many borrowers are looking for ways to cancel their debt. While there are several federal and state programs available to alleviate the burden of student debt, public calls for more action have been increasing in recent years.
For example, the National Association of Real Estate Brokers® (NAREB), one of the oldent minority real estate professional trade associations, recently launched a campaign called, “Revive the American Dream of Homeownership” to change policies and regulations limiting gains in Black homeownership.
According to NAREB, the Black homeownership rate was 44.6% compared to 74.2% for Whites, a gap of 29.6%. In 1960, before Civil Rights and Fair Housing laws were enacted, there was a lower 27-point gap between Black homeownership (38%) and White homeownership (65%), demonstrating the substantial need for policies that support homeownership.
In addition, the Asian American Real Estate Association of America (AREAA), a national nonprofit trade organization dedicated to improving the lives of the Asian American and Pacific Islander (AAPI) communities, recently worked to change underwriting standards to more fairly account for student loans that were in deferment when calculating a borrower’s debt-to-income ratio.
According to Amy Kong, former president of AREAA, in her op-ed published in Chicago Agent Magazine, “Concerted effort and advocacy is needed to ensure solutions are put into place to afford greater access to the American dream for the more than 18 million AAPI members.” This includes ensuring that members of the AAPI community have access to student loan forgiveness programs to help alleviate the disproportionate burden they face when looking to finance a home loan.
Don’t let student loan debt hinder your path to home ownership
Despite student loan debt being a key factor in determining if a borrower might qualify for a home loan, it doesn’t have to hinder the possibility of home ownership. Making payments on time or paying off student loan debt completely, helps consumer credit scores and overall mortgage eligibility. In addition, many home loan programs exist that allow borrowers to put as little as 3% down on a home.
If homeownership might be in your near future, work with a reputable lender like Mutual of Omaha Mortgage to find out what loan program might fit your needs. We can help you look at your full financial picture to see if homeownership is on the horizon.