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It’s been a busy time for higher education! Starting with our own news: We’re excited to announce the launch of a new education and awareness campaign, “10 Years to Zero Debt,” to spread the word about Public Service Loan Forgiveness. This fall marks the 10-year anniversary of the enactment of PSLF, and that means for the first time, borrowers who have made 10 years of payments (120 payments to be exact) on their eligible federal education loans while working for an eligible employer can officially apply to have the balance of their loans forgiven. Unfortunately, numerous reports have shown that many borrowers are unaware of this program or don’t understand how to take advantage of it. So the Center for Consumer Advocacy here at American Student Assistance is taking steps to get the word out about the awesomeness that is PSLF! We’ll be partnering with eligible employers to educate employees, as well as using social media, webinars, email, smoke signals – whatever it takes to let folks in the public sector know there is relief at the end of the tunnel for their student debt. Public service employers and employees can learn more about our campaign here.
Speaking of PSLF – we find that many older parent PLUS borrowers don’t know they could be eligible, which is troubling because the number of older education loan borrowers is increasing at a rapid rate. We explored this issue and others in our recent policy panel discussion “Student Debt– It’s Not Just for Millennials: The Effect of Student Loans on Older Americans.” Check out the replay here.
In other news, we’re concerned to hear of Secretary DeVos’s revocation of several memos issued by the former Obama administration that would have reshaped the way student loan servicers interact with borrowers. As we discussed in a prior post, we already see a huge void in the counseling that’s being provided to student loan borrowers. Before this latest move, the U.S. Education Department seemed to be moving in the right direction, with a plan that included economic incentives for servicers to provide borrowers with accuracy, consistency, accountability, transparency and overall higher-quality service. We’ll be waiting anxiously to see what ED’s next steps will be…
Lastly, we’re thrilled to hear the Fannie Mae news related to student debt and mortgages. First, they’ve modified the way that monthly student loan payments on an income driven plan are calculated in the debt-to-income ratio. Previously, instead of using the borrower’s lower, actual IDR payment, mortgage lenders were forced to use 1 percent of the outstanding student loan balance, putting homes out of reach for many student loan borrowers. Now, Fannie Mae will allow its lenders to use the IDR payment.
Additionally, if someone else has been paying your student loan on your behalf, like your employer or your parents, for the past 12 months, Fannie Mae will no longer require that payment to be included in your debt-to-income ratio.
Finally, Fannie Mae has expanded its cash-out mortgage refinance option from just one participating lender (SoFi) to all of its 1,800 lenders. Under this program, student loan borrowers who have built up equity in their homes can refinance and use that equity to pay off remaining education debt. This is probably a good option for private loan borrowers, parent and graduate PLUS borrowers, and borrowers with older federal loans, since those education loans have higher interest rates than mortgages right now. But remember: refinancing federal student loans into your mortgage comes with two big risks. First, you’ll lose any consumer protections associated with federal education loans, like the right to make income based payments, forgiveness in certain circumstances and the ability to postpone payments temporarily. Second, if for whatever reason you can’t make those home mortgage payments, your house is now at risk of foreclosure. So, consumer beware!
Overall, though, the new mortgage rules are great news for student borrowers everywhere. There’s been too much troubling evidence recently that the student loans required to access the first part of the American Dream (college) are in fact preventing people from realizing the next part of the American Dream (owning your own home). It reminds me of that classic scene from It’s a Wonderful Life, when George Bailey explains how important home ownership is to the Bedford Falls community: “But he did help a few people get out of your slums, Mr. Potter, and what’s wrong with that? Why… here, you’re all businessmen here. Doesn’t it make them better citizens? Doesn’t it make them better customers? You… you said… what’d you say a minute ago? They had to wait and save their money before they even ought to think of a decent home. Wait? Wait for what? Until their children grow up and leave them? Until they’re so old and broken down that they… Do you know how long it takes a working man to save $5,000? Just remember this, Mr. Potter, that this rabble you’re talking about… they do most of the working and paying and living and dying in this community. Well, is it too much to have them work and pay and live and die in a couple of decent rooms and a bath?”
Borrowing for college shouldn’t mean you have to put your life on hold indefinitely while you pay it back. We need more policies like these new mortgage rules that let student loan borrowers repay their debt and pursue other financial priorities at the same time.