FHA's New Rules: Student Loan Debt Calculation

A group of graduates tossing their hats in the air.Are you a student loan borrower looking to explore FHA loan options? Look no further! In this informative guide, we'll delve into the guidelines surrounding FHA loans and how they relate to student loan debt. Navigating the world of student loans and homeownership can be complex, but understanding the specific guidelines established by the FHA is essential. Whether you're a recent graduate or a seasoned professional, this comprehensive overview will equip you with the knowledge you need to make informed decisions about your homeownership aspirations.

The New FHA Student Loan Guidelines Were Released on June 6, 2021

On June 6, 2021, the FHA student loan regulations underwent their first significant revision. At that time, HUD published the final rules for student loans in the twenty-first century.

The new rules make all of this difference. Mortgage lenders may utilize the borrower's total student loan payment under an income-based repayment plan under the new student loan regulations.

Previously, the FHA calculated the borrower's debt-to-income ratio using 1% of the outstanding amount of their student loans.

Under an income-based repayment plan, lenders may now utilize the borrower's accurate student loan payment. For qualifying borrowers, the new standards also permit a wider debt-to-income ratio. Until today, the qualifying percentage did not include debt from other sources.

Old - FHA Student Loan Guidelines

The FHA determines the borrower's debt-to-income ratio based on their overall debt, including their mortgage and student loans. The FHA then determines if the borrower is "highly unlikely" to be able to make their loan payments by comparing this sum to the borrower's income.

Before June 21, 2021, lenders were required to use 1% of the outstanding student loan balance as the monthly payment.

For instance, if your student loan debt is $30,000, your monthly payment will be $300 ($30,000 x 1%). The lender was required to use $300 as the qualifying amount even though the actual cost was less than that amount.

The issue with this approach is that it often makes it difficult for individuals to purchase a house because of the student debt calculation.

New - FHA Student Loan Guidelines

The new FHA guidelines for student loans permit lenders to utilize the actual payment shown on a credit report if it is more than zero or 5% of the loan total. Examples of how to figure out your student loan installments

  1. Student Loan Payment: Appears on the credit report, and the student loan payment of $300 is reported on the credit report.
    Joyce owes over $200,000 in student loan debt, and the lender will use the actual payment amount shown on her credit report.
  2. Student Loan Payment is not on the credit report.

    John owes $50,000 on his school loans, and his credit report does not reflect a monthly payment. When calculating John's debt-to-income ratio, the lender will utilize a fee of $250 ($50,000 x 5%).
  3. Student Loan Payment of $0 on the credit report.

    Kathy owes the federal government $70,000 in student loans; her credit report does not list a monthly debt payment. Unless Kathy requests a recalculation of her monthly payment due to a significant change in income or family size, the lender will use $350 as her payment amount ($70,000 x 5%).

  4. Loan Payment in deferment.

    Trudy is $100,000 in debt to the federal government for student loans, and her credit report indicates that her bills are deferred.

    After the deferral period expires, the loan officer will use a monthly payment of $500 until the loan servicer sends her a payment schedule indicating a reduced payment amount under an income-driven repayment plan.

Qualifying for an FHA Mortgage Just Got Easier

The number of approved home loans may significantly vary depending on how the previous and new FHA rules differ. The last student loan regulations were excessively stringent for many borrowers. More Americans may become first-time homeowners thanks to the modification's relaxed restrictions.

Most lenders require that your monthly debt obligations, which include your mortgage payment, do not exceed a certain percentage of your gross monthly income (often 41%) to be eligible for a mortgage loan. The term "debt-to-income ratio" refers to this. You may only be able to get a loan if your debt payments are treasonable.

For qualifying borrowers, the new standards also permit a wider debt-to-income ratio. Only today, the qualifying percentage does not include debt from other sources.

Many young individuals take on student loan debt to increase their earning potential. A borrower with debt from law school, graduate school, or medical school may be eligible for a loan with a higher loan amount if their debt-to-income ratio is high.

The Different Types of Student Loan Repayment Plans

You may pay back your student loans in many ways, including:

Fully Amortizing Payment Schedule

With a fully amortizing payment schedule, you'll pay off your student loan balance at the end of the agreed-upon period. Ten-year repayment durations are standard for student loans.

This suggests that you may pay off your student loan debt if you make regular payments for ten years or 120 months.

Progressive Repayment Plan

The 10-year term of a graded repayment plan is identical to that of a fully amortizing payment plan, although payments are lower in the first one to two years.

The payments will increase after the first one to two years, so the loan is entirely repaid in ten years.

Income-related Repayment Program

There are various income-based repayment programs, but most have the same characteristics, which I will outline below.

Income-based Repayment Plan

Depending on your current salary level, you repay your student loans through an IBR repayment plan. Considering the size of your family, this typically amounts to between 10 and 20 percent of your anticipated discretionary income.

Borrowers participating in this kind of program often get their student debt erased after 20 to 25 years since most of these payment plans need to be revised to adequately clear the amount (or the rapidly accruing interest).

Deferred Payment

You may be qualified to defer your student loan payments if you are still in school or have recently graduated. Deferment typically lasts three to four years after graduation or until the end of the course.

It is important to remember that interest continues to collect on postponed loans, so proceed with care if you choose this option.

Hardship or forbearance

When the lender allows you to temporarily stop making student loan payments because of a crisis in your life, this is known as hardship or forbearance. In most cases, you can only use patience for 12 months before starting a repayment schedule.


In conclusion, understanding the FHA guidelines about student loans is crucial for individuals seeking to combine their educational debt with homeownership. By familiarizing yourself with the requirements and options available, you can confidently navigate the intricate landscape of FHA loans. Whether you're looking to qualify for a mortgage or considering refinancing, it's essential to consult with a knowledgeable mortgage professional who can guide you through the process and help you achieve your homeownership goals. Armed with the correct information, you can make informed choices and set yourself on the path to financial success.

Student Loan Payment Calculation of Monthly Obligation