Student Loan Guidelines For Mortgage Borrowers With High Balances


This BLOG On Student Loan Guidelines For Mortgage Borrowers With High Balances Was PUBLISHED On March 13th, 2019

Student Loan Guidelines is different depending on the loan program. Many professionals with advanced degrees such as doctors, dentists, nurses, lawyers, and educators often have high student loan balances well into six figures. Many with advanced graduate degrees have very high student loan balance.

  • The largest debt that hinders qualifying for a mortgage is student loans
  • Deferred student loans that are deferred for longer than 12 months is only allowed on VA Loans
  • Many borrowers with high student loan balances run into hurdles when it comes to qualifying for mortgage loans
  • High student loan balance will affect DTI when qualifying for a mortgage
  • Even high balance deferred student loans will impact debt to income ratios

On this blog, we will cover Student Loan Guidelines on government and conventional loans when it comes to qualifying for a mortgage.

Costs Of Student Loans And How It Is Repaid

Higher education costs are soaring year after year. It costs an average of $30,000 a year in costs for a state college or university. Private colleges are double that figure. The average cost of tuition, room & board, and fees at a private college or university is $62,000 a year. Most parents cannot afford to fork over this time of money. Therefore, many students get federal student loans. It is very easy to rack up over $100,000 in student loan debt by the time the student graduates. There are also various types of payment options after the student graduates. 

  • There are various types of repayment options
  • Some repayment plans include income-contingent repayment (ICR), standard repayment, pay as you earn (PAYE), revised pay as you earn (REPAYE), income-based repayment (IBR), graduated repayment, extended fixed repayment, and extended graduated repayment.
  • There are other types of repayment options dependent on the student loan provider

In general, all loan programs will accept a proposed hypothetical monthly payment plan that is fully amortized over an extended term (normally 25 years). This amortized monthly payment over an extended term needs to be in writing.

HUD Student Loan Guidelines On FHA Home Loans

HUD, the parent of FHA, no longer exempts deferred student loans that has been deferred for longer than 12 months.

Alex Carlucci, a senior loan officer with Gustan Cho Associates, is one of our top FHA mortgage loan originators. Alex Carlucci is an expert on FHA Loans with high outstanding student loan debts. Alex issued the following statement about FHA Student Loan Guidelines:

Borrowers debt-to-income- ratio will be lower when choosing a repayment plan that is the lowest monthly payment (fully amortized). This is not always the best option when paying off student loan debt, but will help lower the debt-to-income when qualifying for an FHA loan with student loans. According to FHA student loan guidelines – regardless of the payment status, the mortgagee will use the greater of:
o   1 percent of the outstanding balance of the loan or
o   The monthly payment reporting on the credit report

The actual documented payment provided the payment will be fully amortized. This statement needs to be in writing.

Alex Carlucci further states:

If the payment for student loans is shown on the credit report, no further documentation is required. If the credit report does not reflect a monthly payment for the loan, or the payment reported is greater than the payment reflecting on the credit report: The mortgagee will need a copy of the loan agreement/payment statement in order to verify the monthly payment. If the loan statement/agreement or credit report shows a deferred payment for an installment loan, the mortgagee must have written documentation of the deferral of the liability from the creditor with an outstanding balance and term of the installment loan. If the actual monthly payment is not available for the installment loan, the mortgagee must use 5 percent of the outstanding balance to establish the monthly payment. FHA student loan guidelines require a fully amortized repayment for monthly student loans plan must be in writing by the student loan provider.  You can talk with your Loan Originator and your student loan provider to figure out what your payment needs to when being pre-approved for a FHA loan.

USDA Student Loan Guidelines 

USDA Loans offer 100% financing.

  • No down payment is required on USDA Loan
  • Minimum credit scores required on USDA Loans is 580 FICO
  • Maximum debt to income ratios allowed on USDA Loans is 29% front end and 56.9% back end
  • USDA Student Loan Guidelines is exactly the same as FHA Student Loan Guidelines
  • Deferred student loans longer than 12 months are not exempt in DTI Calculations
  • 1.0% of the outstanding student loan balance is often used as a monthly hypothetical debt if the student loan is deferred and/or is on an income-based repayment plan
  • However, if borrower can get a fully monthly amortized payment over an extended term (normally 25 years) in writing, we can use this as a monthly payment

Contact us at Gustan Cho Associates at 262-716-8151 or text us for faster response for more details. Or email us at

Fannie Mae And Freddie Mac Student Loan Guidelines On Conventional Loans

Borrowers with substantial outstanding student loans should go with conventional loans. Conventional Loans is the only loan program that allows for Income-Based-Repayment Plans (IBR) as long as it reports on all credit bureaus. Qualifying for a conventional loan with student loansis the easiest way to go about if borrowers have large outstanding balance.

According to Michael Gracz, the National Sales Manager at Gustan Cho Associates at Loan Cabin Inc., a conventional mortgage expert, he issued the following statement:

When a credit report does not reflect a monthly payment for student loans or if it reflects $0 as the monthly payment, the lender must use the following to determine the monthly payment: When there is an income-driven repayment plan, the lender may obtain documentation to verify the payment is actually $0. The lender can use $0 for the payment if it is an income-driven repayment plan. When a loan is deferred or in forbearance, the lender will calculate the monthly payment equal to 1% of the outstanding balance (even if the amount is lower than the actual fully amortized statement), or Documentation for the loan repayment terms reflecting fully amortized. Fannie Mae and Freddie Mac conventional student loan guidelines will require a fully amortized monthly payment in writing by the student loan provider.

VA Student Loan Guidelines On VA Loans

VA student loans guidelines exempt deferred student loans that have been deferred for longer than 12 months. As long as borrowers outstanding student loans have been deferred longer than 12 months, no hypothetical debt will be used in DTI Calculations. Student loans that are on income-based-repayment plans or other repayment that is not amortized, VA requires the following:

  • Take 5% of the outstanding student loan balance and divide it by 12
  • The resulting figure will be the hypothetical monthly payment used by lenders 

Mortgage Borrowers with high-balance student loans, please contact us at 262-716-8151 or text us for faster response. Or email us at Gustan Cho Associates at Loan Cabin Inc. are direct lenders with no overlays on government and conventional loans.  We are available 7 days a week, evenings, weekends, and holidays.

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