FHA Student Loan Guidelines Change

Student loan guidelines

Are you are one of the approximately 44.7 million Americans* with student loan debt? Then the HUD announcement changing the FHA student loan guidelines on June 17,2021 is good news for you!

The changes to how FHA treats student loans could open up expanded borrowing power for many of us in the U.S.


Prior to HUD publishing the Handbook-4000.1 in 2015, there was no specific guidance on student loans. The new handbook addressed student loans specifically. It clarified that lenders should calculate the payment of deferred student loans at 2% of the outstanding balance.

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So, if your deferred student loan had a $10,000 balance then a $200 payment would be included in your debt to income ratio calculation.

The 2016 revision of the student loan guidelines changed the calculation for the payment that was to be used. . A lender was required to use the greater of 1% of the outstanding balance on the loan(s); or the monthly payment reported on the borrower’s credit report.

Lenders were forced to use 1% of the balance if the payment reported was less than the 1% calculation. The only exception to that rule was when a borrower could prove that the actual payment would fully pay off the loan at the end of the term. In other words, the payment amount was not a reduced amount but rather a full principal and interest payment based on the balance and the length of the loan.

The NEW FHA student loan guidelines

The new FHA student loan guidelines bring some welcomed changes. The debt to income ratio will still include student loan payment even if they are deferred. However, the options have changed.

Is your student loan payment is lower than the amount listed on your credit report? The lower payment can be used IF you obtain written evidence of the terms from the creditor or student loan servicer.

Credit report doesn’t show a payment amount for your student loan? Then the lender can either use the documented payment from the creditor servicer OR 0.5% of the outstanding balance.

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So, if you have a $10,000 loan, you can now qualify with only a $50 payment if your student loan with no payment reported on the credit report!

The new FHA student loan guidelines make FHA loans even more attractive to potential buyers and those looking to refinance their homes.

If you have any questions on this topic or any other mortgage-related topic, by all means reach out to me. Send me an email
Give me a call – (858) 3-LOANS-3
Text LOANINFO to 44222 or
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