How credit unions can now help ease the burden of student debt

Outstanding student loan debt in the U.S. totals $1.3 trillion, according to the Federal Reserve Bank of New York. That’s the second-highest level of all consumer debt types — only behind mortgages.

Here are a few other stats to consider:

• Nearly 70 percent of bachelor’s degree recipients are leaving school with debt, according to the White House. That could have major consequences for the economy.
• The class of 2015 graduated with $35,051 in student debt on average, according to Edvisors, a financial aid website. That’s the most in history.
• One in four student loan borrowers are either in delinquency or default on their school debt, says the Consumer Financial Protection Bureau.

At the Same Time

Homeownership rates are at their lowest level in at least 20 years. And Millennials are a part of the challenge. They have the lowest homeownership rate of their age group in history.

Millennials are delaying life choices like marriage and parenthood. And those are the primary drivers of homeownership.

Finding Solutions

Fannie Mae understands the connection between student loan debt and its impact on the housing market.

To help homeowners with at least 20 percent home equity pay off high interest rate student debt, last year we introduced our Student Loan Payoff Refi solution in partnership with Sofi. Now, we’re introducing updates to expand that program by helping our credit union partners and other lenders provide these benefits to even more homeowners.

Effective with the April 25 Selling Guide release:

• Lenders can offer a cash-out refi for homeowners to use the equity in their home to pay off their student loans in full. This allows lenders to serve more households than before.
• With appropriate documentation, lenders can exclude debts others have paid in the past 12 months from the debt-to-income calculation. This includes credit cards and auto and student loans. Documentation from the borrower should include 12 months of canceled checks or bank statements showing the payments to the debt service provider.
• Lenders can now accept student debt payments appearing on a credit report. Historically, Fannie Mae’s student debt policy required lenders to use 1 percent of the loan balance — regardless of the actual payment.

With interest rates still near historic lows, this refinancing option could help an estimated 8.5 million U.S. households pay down or completely pay off student debt obligations.