Deferred Student Loans USDA Student Loan

USDA Student Loan Updates

USDA has long seen the benefit of a College Degree – and in fact USDA Home Loan Underwriters will use Higher Education as a “compensating factor” when a family is close on the debt ratios!  Unlike FHA and VA home loan underwriting, though, the no money down home loan programs offered through USDA COUNT deferred Student loans IN the total debt ratio.

Student loans come in two classes: deferred and not deferred.  And one thing to keep in mind when looking at the USDA Loan Program is that it does treat student loans differently than the other loan programs available. At first glance you would intuitively think that a deferred student loan would not be considered in qualifying for your new home loan.

Recently, USDA Home Loan Underwriters announced a slight change, because of a new type of Deferred Student Loans.  One type of  deferred Student Loan is the “traditional” set payment each month… the NEW type of Student loan is based upon Income, and is scheduled to change on an annual basis.

This new change is CRITICAL – and important to understand if you have an Income Based Repayment plan on your Student Loans and you want to qualify for a USDA Home Loan!

Please note in the directive that USDA Home Loan Underwriters are looking for DOCUMENTATION of what the payment schedule is going to be, and that is something that you should begin trying to gather early in the mortgage loan process.

3 Tips For Mortgage Approval When You Have Deferred Student Loans


Income Based Repayments and Deferred loans

Student loans are long-term liabilities that must be included in the debt ratio calculation per RD Instruction 1980-D, section 1980.345(c).  Because some student loans are not on fixed payment plans, the repayment amount due may increase or decrease without regard to additional liabilities incurred by the borrower.  Therefore an accurate monthly liability amount for this payment must be included in the debt ratio when qualifying the applicant for a long-term mortgage obligation.

All student loans must have documentation to verify the current payment due (e.g. letter from loan Servicers, online account verification, etc.).  Verifications are valid for 120 days, 180 days for new construction.

Student Loans:  Conventional/Fixed Payment/Deferred:

·         Lenders may review the account statements and use the fixed monthly payment due (no adjustable payments).

·         Deferred student loans that are not in repayment status must use an estimated payment of 1% of the loan balance, or a verified fixed payment provided by the loan Servicer to document the payment that will be due. (READ:  We will need help getting this documentation for the USDA Home Loan Underwriters regarding what TYPE of Student Loan you have in Deferment, AND that it will be paid back in “consistent” monthly payments that don’t change.)

 Student Loans:  Income Based Repayment (IBR):

·         IBR amounts are not fixed payments and may increase annually.

·         IBR payments of $0 are not eligible to be used in the debt ratio.

Across the “Internet” you might be reading something that says if your IBR payment can be established, we can use 1% of the Balance or $100 payment.  That is outdated information.  We can not use “variable” payment student loan payments.  We MUST establish a payment for you to get a USDA Home Loan

We’ve also put together a guide for Recent College Graduates Looking for Their First Home.

If you have not owned a home in the last 3 years – then you might qualify for the NC First Time Home Buyers Grant Program through NCHFA.  This program offers a 3% Grant that can be used for down payment or closing costs.  The minimum credit score required for the Tax Credit or the Grant program is 640.  This means that 2 or your three credit scores need to be at or above 640 to qualify for the program.

Have questions about the USDA Student Loan Policy, or qualifying for one of the  no money down home loan programs – please call Steve and Eleanor Thorne, NC Mortgage Experts 919 649 5058.  We love helping folks buy their dream home!



  1. says

    Is this also true for other states? I live in Florida and am trying to get a USDA loan and they will only calculate it at full payment for them all. If I had official documentation to send them stating to use the $100 (we are paying $0) then perhaps I could actually GET a home instead of paying for an apartment and pay more than it would to OWN a home.

  2. says

    I’m not sure I understand your question – sorry. Yes, these rules are the same for all States. If you have deferred Student Loans (we’ve seen folks with 8 or 9) and USDA will count a payment of 1% of the Balance, for EACH of those loans.

    If the Deferred Student Loan is an Income Based Repayment USDA Says:

    IBR payments of $0 are not eligible to be used in the debt ratio. The applicant must provide documentation of the IBR payment plan from the loan servicer. The
    following apply:

    1. If the IBR payment is less than $100 and 1 percent of the total loan balance is more than $100, a minimum payment of $100 must be included in the
    debt ratios.
    2. If the IBR payment is less than $100, and 1 percent of the total loan balance is less than $100, a minimum payment of 1% of the loan balance must be included in the debt ratios.
    3. If the current IBR payment is over $100, use that payment amount in the debt ratios.

    If the Student Loan is reporting that the payments will be higher than $100 – then USDA is definitely going to use the higher number.

    If you have deferred student loans, we generally suggest that you go ahead and get letters explaining what the payment is going to be, or we use 1% of the Balance – depending on what type of loan / payment plan you have. If you have other questions, I hope you’ll call us. We can make loans in Florida. 919 649 5058

  3. Kelli Blackford says

    Ok I am wanting to get a USDA loan and I have 20,000 in student loan debt but my IBR is going to be 0. So does this mean that:

    A. They do not count my student loan in my debt ratio

    B. They have to count $100 because it is set at 0

    I live in a family of 5 and my income is the only income so my IBR will never go above 0 unless i get an AMAZING job which means my afforability could cover my student Loans. But my local USDA office says they need documentation before they can tell me if they have to count the 1% or not. But I have also read that I need to show that the student loan payment is good for at least 1 year and since IBR is calculated every year will it hurt me to sign up before I get prequalified?

  4. Tiki says

    Hi, I just applied for a USDA loan 2 weeks ago ,I provided the paperwork stating my IBR was $0, and I was told that my student loan would it still be counted in my debt ratio. Tiki

  5. says

    Yep, as we stated, we will have to count a $100 debt PER IBR loan even if it’s zero…

    If the IBR payment is less than $100 and 1% of the total loan balance is more than $100, a minimum payment of $100 must be included in the debt ratios. (READ: Even if you are only being charged $22 a month, we are going to COUNT $100 a month for that debt!)

  6. Melissa says

    I’ve always understood it to mean that since my IBR payment is zero, they’re going to count 1% of my loan rather than $100. Which means I’m completely shut out of getting a mortgage, as 1% puts me way over the debt-to-income ratios. But what you’ve just replied seems to indicate that you will count the payment as $100. Is this true?

  7. lorie sherman says

    my daughter has a condo in CA and rented it out after she graduated UCSD. She is now in her 2nd year of graduate school in AZ and will become a pharmacist in the next few years. She wants to upgrade her rental property and sell current condo and roll over capital gains (145k) into new rental property. Her credit is average and income not too high due to school. she does work as a pharm tech for Costco and has been there over three years. I would like to be on loan to boost her income and credit. She carried no loans in under grad but now in grad school has 20k sallie mae and pays interest only on time every month. there is also 20k in deferred government loans. Since she is putting min of $140k as a down on a $270k home, will this be an issue for her?

  8. says

    Lorie! Thanks for asking! Without seeing her credit – there’s no way for me to give you a solid answer, however, there are programs available that will allow you to be on the loan to help her. If she is paying on time, a regular amount on her student loans, that will help. We will need her tax returns to see what kind of expenses she has on the Condo that she is claiming – she will have association dues, for instance – and she might have a management company. We would be glad to give you exact figures and qualifying information, as we can make loans all over the country. Our number is 919 649 5058. We OFTEN talk to parents who are gathering information for children who are working all the time, and going to school – meaning the kids just don’t have the time to do all of the research needed to make the moves they want to. You’re doing a great job of gathering information for your daughter – she’s lucky :)

  9. Katrena says

    Hi, I am applying for a USDA loan but am having a bit of trouble regarding the student loans qualification piece, as well as the DTI ratio. I understand that the qualifying DTI is 29/41; however, I was told that my DTI is fine on the back end, but the front end is a little high at 34%. My only debt is student loans that are currently in deferrment until 2017, but were previously, as recent as May under the IBRP, with a payment of $0. I understand that they will count either $100/loan or 1% of the loan balance. Of course the 1% will be too high, but I’m wondering if the $100/loan will be? Also, I’ve researched and saw where higher ratios are considered with compensating factors. In the same article it talks about mitigating factors to unacceptable credit, which implies I can apply for an adverse credit waiver to establish my intent to good credit. My score qualifies, but could be higher if it weren’t for my temporary unemployment status approx. 15 months ago. Lastly, the article touched on debt ratio waivers, which may be helpful for me since I was over on the front end, correct? Please advise me. I have called and left your office a vm. Thanks.

  10. says

    We have seen folks get approved with higher DTI ratios, if there are off setting factors and manual underwriters. Not all companies are allowed to do manual underwrites – which could be why you are running into a problem… additionally, USDA made some “un-disclosed changed” to their automated underwriting system about 10 days ago. I say undisclosed, because lenders that we talk to across the country are having problems getting loans to run through GUS that would run just fine in July… Call us, 919 649 5058 and we’ll be glad to tell you what we are seeing with USDA Home Loan Approvals

  11. says

    USDA Home Loans NC will count the current student loans, even if they are in deferment. Most folks we know who are buying a house with the USDA Home Loan program are looking for a no down payment optino to buy a house. We would see if you qualify for a NC Grant program available for first time home buyers. Not all banks offer it, but we do this for folks who are in your situation. You can always call us at 919 649 5058 and we’ll be glad to go over your situation with you! Congratulations!

  12. says

    USDA student loan question. My wife has $187,000 in student loans. 1% is $1870. Is that calculated as the payment each month, or the $1870 divided by 12 months, which is $155?

  13. says

    Pat – frankly, the USDA Home Loan program is probably not going to be the best program for you. We would love to talk to you about the NC Grant program, which also offers no down payment, and looks at Student Loans in a completely different way. As a direct answer to your question…

    When the Policy initially changed last fall – we were able to document that $155 would be the most someone would have to pay on the $187,000 debt. HOWEVER, even though we had 3 pieces of documentation, an Underwriter last week made us count $1870 a month. So, it will depend on the documentation we can get on the loan, and the Underwriter who sees it. That’s why we suggest the NC Grant Program as a back up.

    The good news is that USDA in NC is on SAME DAY turn time. That’s how few people are going to this underwriting program… so it no longer takes us 60 just to see what they are going to say.

    Please call us – we’d love to help you finance a home! 919 649 5058

  14. Angel says

    I currently pay $80.00 a month on my income based repayment plan I have 11 loans all together for around 36,000 how would this count against me when applying for a USDA loan.

  15. says

    If you decide to keep them as IBR payments – USDA Home Loan Underwriters are going to count 1% of the balance or $360 a month in your debt ratios. FHA Loans and IBR Payments, however, will allow us to establish what your payments are (IBR or otherwise), and count the payments as they actually are. What I’m saying is that if you have 11 loans, we’ll need to see 11 payments. Not sure if the $80 represents all of them. You can certainly call us for more details on your particular situation. We do tons of USDA Home Loans and the FHA Down Payment Assistance Grants.

  16. Peggy says

    I am so confused about this. I figured it would be better for the both of us if I just copied and pasted directly what my terms show from my account. My question is how will the following be used when applying for a USDA loan? Thank you so much for all your help.

    Starting on 07/13/2015, you’re required to make 12 monthly payments of $0.00.
    On 07/13/2016, your payment will increase to $72.12, unless you renew your income-based repayment plan and still qualify for a lower monthly payment. The number of payments may vary, based on your remaining balance and monthly payment amount.

  17. says

    Peggy – as it stands today, applying for a USDA Home Loan, we would be required to count $72.17 a month against you. You can call us at 919 649 5058 and we can go over other programs that would help you.

  18. Kat says

    I’m also very confused about USDA/FHA Loans. I’m in Missouri. Can you do loans in Missouri?

    I have roughly 88K in student loan debt that I consolidated = 2 consolidation loans (subsidized 13K and unsubsidized 75K). IBR is $0/month. I have 6 other student loans not consolidated totaling 8K. So, for the purpose of debt to income, my monthly student loan payments would be $100 + $100 (consolidation loans) + $80 (roughly, for the 8K in other loans) = $280 monthly payment for student loans?

    What debt/income ration is accepted for USDA loans?

    Even though it is a $0 down payment program, can you do a down payment anyway?

  19. says

    Kat – USDA will count 1% of the balance on the IBR portion. If I’m reading that correctly, it’s well over $75,000 – so they would count $750 a month. The only way to avoid that on a USDA Home Loan is to have the payments fixed. They do not allow for a $0 payment, or an IBR payment – it must be a fixed rate payment.

    FHA rules change 9/13/15. Up until that point, we are allowed to count $0 if the deferred Student Loan is deferred for more than 12 months. If we could show that the $0 was in effect for more than 12 months – so you close in August of 2015 but your payments will remain $0 until 11-2016 (for instance) then I’ve seen an underwriter accept a $0 payment. That’s VERY HARD TO PROVE.

    Starting mid September, FHA will require any loan with a $0 payment to be calculated at 2% of the balance. In this case, that $75k, $0 payment loan would be counted at $1500 a month.

    USDA Home Loan accept a total Debt ratio for folks with 660 or better credit scores you need at least a Debt ratio of 41.0000% or better. We have seen really well qualified loans this summer with ratios as high as 43.000 and one at 44.0000% But those, again, are the exceptions.

  20. Leigh says

    I know this is far away from NC, but … are you able to help with USDA loans in NY?

    Thanks so much,


  21. social worker says

    I am in the process of obtaining a USDA loan for a new build. I have 42,000 in student loan debt but I am still in my grace period. The loan company will not allow me to select my payment plan at this time. I have 10 days to close before my builder can sell my house to someone else. What can I do to obtain proof of my payment plan from my student loan company. They refuse to let me select a plan and the 1 plan puts me $100 over my DTI ratio.

    Thanks in advance!

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