Student Loans: How The Financial Responsibility Act of 23 will Impact Homeownership!
he Financial Responsibility Act of 23 will Impact Homeownership As we all agreed, we're facing a potentially challenging situation come September. Many of our clients have not made student loan payments in three years due to the pause on payments. Combining this with no financial planning, rising inflation, high credit card debt, and the prospect of a payment that hasn't been seen in 36 months, we could be looking at a significant impact on those directly or indirectly involved in the housing market. For our sellers, especially those who recently purchased at low-interest rates in the 2 or 3% range and have student loans, this situation might affect their ability to move on to their next home. For our current approved buyers, this could impact their pre-qualification. Imagine adding $300 to $1,000 to their current debt-to-income ratio (DTI). And let's not forget our new first-time buyers. They will also feel the impact on their qualification. We must act swiftly to help them avoid default and late payments when the pause lifts in September. ..................................................... High-Level View Of Options We Can Use ⚡️Standard Repayment Plan Payments are a fixed amount that ensures your loans are paid off within 10 years (within 10 to 30 years for Consolidation Loans). This is not an income-driven plan. It is not a good option for those seeking Public Service Loan Forgiveness (PSLF). ⚡️Graduated Repayment Plan The graduated repayment plan starts with lower payments that increase every two years. Payments are made for up to 10 years (between 10 and 30 years for consolidation loans) This is not an income-driven plan, which means you will not qualify for Public Service Loan Forgiveness or interest relief as you would on an income-driven repayment plan. Even more detail here. ⚡️Extended Repayment Plan Payments may be fixed or graduated and will ensure your loans are paid off within 25 years. If your extended plan is graduated, then payments will rise over time. You will pay back significantly more interest than on a 10-year plan. This is not an income-driven plan, which means you will not qualify for Public Service Loan Forgiveness or interest relief as you would an income-driven repayment plan. Even more detail here. ⚡️Revised Pay As You Earn Repayment Plan (REPAYE) This is an income-driven plan. Your monthly payments will be 10 percent of your discretionary income. Payments are recalculated annually based on your updated income and family size. Unlike PAYE, though, the monthly payment can exceed the 10-year standard plan payment. ⚡️Pay As You Earn Repayment Plan (PAYE) This is an income-driven plan. Your monthly payments will be 10 percent of discretionary income, but never more than you would have paid under the 10-year Standard Repayment Plan. Payments are recalculated annually and are based on your updated income and family size. ⚡️Income-Based Repayment Plan (IBR) This is an income-driven plan. Your monthly payments will be either 10 or 15 percent of discretionary income (depending on when you received your first loans), but never more than you would have paid under the 10-year Standard Repayment Plan. Payments are recalculated annually based on your updated income and family size. ⚡️Income-Contingent Repayment Plan (ICR) This is an income-driven plan. Your monthly payment will be the lesser of 20 percent of discretionary income or the amount you would pay on a repayment plan with a fixed payment over 12 years, adjusted according to your income. Payments are recalculated annually based on your updated income and family size. ⚡️Income-Sensitive Repayment Plan This is an income-driven plan. Your monthly payment is based on annual income, but your loan will be paid in full within 15 years. Deferment ............................. You are in deferment on your 6-month grace period. Interest accrues during this period. This means your balance will increase, and you’ll pay more over the life of your loan. Any period of deferment will not count toward loan forgiveness. We recommend you enter into an income-driven repayment plan to lower your payment. Forbearance You are in forbearance, and interest accrues during this period. This means your balance will increase, and you’ll pay more over the life of your loan. Any period of forbearance will not count toward loan forgiveness. We recommend you enter into an income-driven repayment plan to lower your payment.