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New Homebuyer Programs Help Student Loan Borrowers

By U.S. News & World Report

Evidence showing that student loan debt is affecting the housing market continues to pile up — but so are tangible solutions for borrowers.

According to the recent joint study by the National Association of Realtors and American Student Assistance — full disclosure, ASA authors the Student Loan Ranger — most millennials who carry student debt today do not own a home, and they typically expect to wait seven years to buy one, thanks to their student loans. Most cited the inability to save for a down payment as the cause for the delay.

Meanwhile, among millennials who do own homes, 28 percent say student debt is holding them back from selling their existing home and buying a new one. The average delay for homeowners to buy a new home, because of their student debt, is three years.

The study, which surveyed millennials born between 1980 and 1998, found a median debt load of $41,200 but a median annual income of only $38,800. And similar to the results of multiple other reports in recent years, this study showed that student debt delays borrowers’ other personal finance decisions, like starting a family or business or saving for retirement.

[Read more about student loan borrowers delaying life decisions.]

Now those directly affected by millennials’ slow entry into the housing market are starting to take notice.

Lennar Corp., a homebuilder based in Florida, and its subsidiary Eagle Home Mortgage recently unveiled its Student Loan Debt Mortgage Program to help free up student loan borrowers’ budgets so they can afford a home. Under the program, Lennar will direct up to 3 percent of the home purchase price to repay up to $13,000 of the borrower’s student loans for those purchasing a brand new home from the company.

Down payments can be as low as 3 percent, but potential buyers must meet credit and income requirements. The program aims to benefit millennials and is not intended for parents who borrowed for their children’s education.

Skeptics are wary that programs like Lennar’s will drive up home prices because the seller or lender will simply turn around and build the student debt contribution into the purchase price, although Lennar states in its announcement that those funds do not increase the home’s price or the mortgage loan amount.

Interested student loan borrowers should examine offers like these carefully to make sure a home’s price hasn’t been artificially inflated — you don’t want to just exchange student loan debt for home debt. But at the same time, this is a positive step forward that players not typically associated with student loan debt — like homebuilders — are developing creative fixes to ensure student loan borrowers can still purchase a home.

Homebuilders and lenders aren’t the only ones stepping up to the plate, either. As we noted recently, Fannie Mae and the Federal Housing Administration have made changes to the rules surrounding debt-to-income ratios that benefit student loan borrowers on income-driven repayment plans; borrowers who have their student loans paid by a third party, like their parents or employer; and borrowers who may want to pay off their education loans with home equity.

[Discover how new Fannie Mae rules help homebuyers and owners.]

One state government has also gotten creative in this area. For the past year, the Maryland Department of Housing and Community Development has offered its SmartBuy mortgage loans to help eliminate student loan debt as a barrier to home ownership.

Here’s how this initiative works: Maryland sells foreclosed homes, after it makes them move-in ready, to first-time homebuyers with student debt. The mortgage is structured into two.

The first mortgage covers 95 percent of the sale price, while the second is a five-year forgivable loan in the amount of up to 15 percent of the purchase price. The latter is used at closing to pay off the borrower’s outstanding student debt balance and is a zero-percent interest-deferred loan with no monthly payments.

Each year for the first five years of the mortgage term, 20 percent of the total amount due is forgiven. So the homebuyer never has to repay the second mortgage at all, unless he or she sells or refinances in the first five years.

[Read how mortgages are easier to get with deferred student debt.]

Like the Lennar program, only student debt in the borrower’s name that was used for his or her own education is eligible. And one important caveat: Maryland will put up between $1,000 and 15 percent of the home purchase price to pay toward the borrower’s student debt — but if the borrower’s total student debt exceeds that 15 percent, he or she must make other arrangements to pay off the entire balance at the time of closing. The borrower can’t have any outstanding student loans after the home purchase is complete.

For prospective homebuyers who feel like their debt is holding them back, the good news is that programs like Maryland SmartBuy are drawing attention from other states anxious to replicate the win-win benefits, like attracting an educated workforce to put roots down in the community and bringing stability to neighborhoods decimated by the foreclosure crisis of the Great Recession.

Unfortunately, we still have a long way to go before programs like these are widespread and more student loan borrowers can enjoy the benefits. In the meantime, student loan borrowers should educate themselves on all the emerging options to mitigate their debt, such as employer student loan reimbursement and the mortgage underwriting rules changes mentioned above.

More from U.S. News

Tackle the Public Service Loan Forgiveness Form

Stay Informed to Make Wise Student Debt Choices

File FAFSA Early to Minimize Borrowing

New Homebuyer Programs Help Student Loan Borrowers originally appeared on usnews.com

Don’t Settle for Student Loans to Pay for Online Education

By WTOP Staff
Online college programs are becoming a more popular choice for prospective students, with one study finding that more than 6 million students enrolled in at least one online course in fall 2015. The popularity of these courses can be attributed in part to their flexibility with working adults' schedules, students' ability to progress more quickly through online programs and, oftentimes, cheaper tuition. [See 10 low-cost online bachelor's programs for out-of-state students.]Online degrees can be beneficial to many college students, but some studies have shown online learners complete their programs at lower rates than students at traditional brick-and-mortar campuses. Individuals with student loans but no degree comprise two-thirds of defaulted borrowers. Though these numbers are not encouraging, just like for traditional programs, there are ways to reduce how much you'll need to borrow for an online program to ensure you won't become one of these statistics. Don't just settle on borrowing student loans to cover the whole cost of your program and living expenses. Instead, start thinking about how to cut costs and cover your balance in different ways, such as the following. -- Grants and scholarships: Even though you are taking an online course, you can still apply and receive grants and scholarships. But your first step should be to complete the Free Application for Federal Student Aid, commonly referred to as the FAFSA, which will allow you to receive a Pell Grant if your expected family contribution is low enough. The EFC criteria and award amounts are adjusted annually, but the 2017-2018 academic year awards range from $606 to $5,920, which could significantly lower the amount you borrow annually. Your next step is to apply for scholarships. You can start by checking online scholarship search engines, such as the Salt Scholarship Search, College Board's BigFuture and Peterson's. But don't forget to take advantage of local organizations and your school's financial aid office. Both may offer scholarships that you can't find with a national scholarship search. [Review these 10 sites to kick off your scholarship search.]For instance, organizations like the Elks Club, Knights of Columbus or the Rotary Club typically offer scholarships annually to local students. Just because you're going to school online doesn't mean you're ineligible. Visit your local library for scholarship listings, and ask around town. You might be surprised how many local organizations offer scholarships. While these scholarships typically aren't large, every little bit counts. Each dollar you receive in a scholarship is a dollar you don't have to borrow and pay interest on. -- Work-study: Another option for online students may be work-study awards. Not all students enrolled in online programs are eligible, but students at some schools -- including, for example, SUNY Empire State College and Liberty University -- are. Work-study awards are not given upfront like scholarships and grants. In most cases, they are an offer to earn up to the awarded amount if you secure an eligible work-study job. While there is a misconception that all work-study jobs must be on campus, students can work for off-campus, nonprofit or public employers as long as the work is in the public's interest. You may be able to work for a for-profit employer if the job is relevant to your course of study. No matter who the outside employer is, it will need to have an established agreement with your college for you to receive work-study funds. Remember, to be eligible for federal financial aid, you must be enrolled and pursuing a degree or certificate. If you're not working toward a credential, Pell Grants and work-study won't be option, but you may still be able to take advantage of private scholarships -- just be sure to read the eligibility criteria carefully. [Explore what to know about financial aid in online programs.]-- Pay as you go: One of the great benefits to enrolling online is the flexible schedule, which can allow you to complete your college coursework around your responsibilities. But prospective students often overlook using their part- or full-time job earnings as an option for paying for college. Almost 80 percent of college students in 2015 worked at least part time while attending classes, according to the National Center for Education Statistics. By budgeting and thinking strategically about your college costs, you can likely reduce your dependence on student loans by paying a portion out of pocket. Many -- but not all -- online programs are less expensive than traditional programs and often have shorter payment periods. Six, eight or 10 weeks are common course durations. Because of the frequency of payments in an online setting, you may be well-placed to pay as you go and possibly avoid borrowing altogether. Attending college online and avoiding student loans may be challenging, but if you are willing to put in the effort, you can limit the amount you need to borrow. More from U.S. News Q&A: Understanding Student Loan Discharge Eligibility Student Loan Refinancing Isn't Right for All Borrowers
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