InvestingMortgage

Don’t let student loan debt kill your clients’ dreams

Refinancing is available and can help borrowers finance a bigger mortgage
  • Refinancing student loan debt could be the key to avoid being priced out of the market.

*This article has been edited to reflect more recent data. 

The National Association of Realtors has been sounding the alarm about how student loan debt can make it harder for millennials to qualify for a mortgage and become homeowners.

That’s undoubtedly true for many with student loan debt. But NAR has also noted that millennials are buying more homes than members of any other generation.

An analysis by Zillow suggests that in the long run, having a college degree — particularly an advanced degree — dramatically increases the probability that you will be a homeowner.

Brookings Institution fellow Susan Dynarski has concluded that “The striking gap in homeownership is not between college-educated people who did and did not borrow, but between those with and without a college education.”

1 million will buy homes with student loan debt this year

A recent report from Black Knight Financial Services notes that there’s been a 40-percent increase in the number of mortgage holders carrying student loan debt over the past 10 years, from 5.4 million in 2006 to 7.7 million today.

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According the Black Knight report, 23 percent of homebuyers who were approved for purchase mortgages in 2014 had student loan debt.

If you apply Black Knight’s ratio to Fannie Mae projections that there will be 5.9 million sales of new and existing homes in 2016 — and that about two-thirds of those home purchases will involve a mortgage — it looks like about 1 million homebuyers with student loan debt will be approved for a mortgage and go to the closing table this year alone.

What those numbers don’t tell you is how many would-be homebuyers are turned down for a mortgage because of their student loan debt, or how many could have qualified for a bigger mortgage.

At Credible.com, we’ve analyzed data on thousands of borrowers and documented how student loan debt can inflate debt-to-income ratios and make it more difficult to qualify for a mortgage.

Bettering homebuyers’ odds of being approved for a bigger mortgage

Credible is a marketplace where student loan borrowers can shop for the best refinancing offer from multiple lenders. Credible users who refinance into a loan with a longer term typically lower their monthly payment by $218.

At today’s interest rates, a borrower who prequalified for a $300,000 home loan could boost their mortgage borrowing limit to about $350,000 by trimming their student loan payment by $218 a month.

In many parts of the county, refinancing student loan debt could be the key to avoid being priced out of the market.

Student loan refinancing by private lenders is a booming business. Last year, Goldman Sachs estimated that about $150 billion in federal student loan debt could be refinanced at a lower rate (resulting in about $10 billion to $20 billion in lost revenue for the government).

But many student loan borrowers, including would-be homebuyers, haven’t heard about the opportunity to refinance student loan debt.

That’s why Credible is seeking to partner with companies in the real estate business — including real estate brokerages, franchisors and mortgage lenders — to spread the word about refinancing, and whom it can help.

Some who have heard about student loan refinancing may think that it’s only an option for wealthy borrowers with pristine credit. With multiple lenders competing to serve a wide range of borrowers, that’s no longer the case.

Borrowers who have recently used Credible to refinance demonstrate the point:

  • Among super-prime borrowers (defined as those with a FICO 740 or above) accepting refinancing offers through the Credible platform in the last nine months, income averaged $88,627.
  • Some lenders on the platform will provide offers to borrowers with a credit score as low as 620, provided they have an eligible cosigner. Among non-super-prime borrowers refinancing, average income was $73,081.

Student loan refinancing is here, now

NAR has thrown the group’s considerable lobbying weight behind legislation by Sen. Elizabeth Warren, “The Bank on Students Emergency Loan Refinancing Act,” which would allow the federal government to refinance everybody’s federal student loans at lower interest rates.

Not only would such a program be costly to taxpayers — the expense could total $58 billion over 10 years, according to a CBO analysis of Warren’s original proposal — but there are questions about the fairness of refinancing everybody’s debt, regardless of need.

Republicans blocked a vote on Warren’s bill in 2014, and continue to oppose it. Although Democrats could end up with a slim majority in the Senate after the November elections, polls suggest the House of Representatives is almost certainly out of reach.

So the prospects for a “refinance everybody” government program that’s staunchly opposed by Republicans are highly uncertain, at best.

But private student loan refinancing is here, now, and it could help put your clients on the road to homeownership today.

I invite you to help us spread the word.

Stephen Dash is the founder and CEO of Credible.com, the multi-lender marketplace. For more on how refinancing student loan debt can help homebuyers qualify for a mortgage, contact partnerships@credible.com.