Student Loan Deferment
Today in this video, we’re going to talk about the student loan deferment and what it means for you for the rest of the year and what it means for those who are trying to buy a house with student loans. Check it out.
Hi, my name is Rhonda Burgess and I’m a real estate broker and mortgage underwriter here in Nashville, Tennessee, and my firm is Southern Living Realty Partners. Today what I want to talk about is the student loan deferment that was part of the Cares Act. Under the Cares Act all federal student loans, those are the student loans that you got directly from the federal government that would be like Fedloan, Great Lakes, all of the federal loan servicers. These are federally backed student loans.
We have been in a deferment ever since the Cares Act, which came out in March. So what the Cares Act said is that the interest rate on all federal student loans went to zero and therefore we haven’t had to make any payments on our student loans under the Cares Act. Well, as you know, the Cares Act expired and Congress had not implemented a new act. So President Trump came out with an executive order to extend the deferment on the student loans and the 0% interest rate.
And I saw just yesterday that the secretary of education has said she will implement his Trump’s executive order to extend that through the end of the year. So what that means is all federal student loans will remain in deferment. We will have a 0% interest rate. So what I want to talk about is what does that mean for you as a student loan borrower? And what does that mean as far as you trying to get a house while you have student loans?
So what that means is if you have federally backed student loans, you will still have zero payment through December 31st. I don’t know if they’re going to extend it past January. I do know that this was an easy order for the Department of Education to implement this executive order as opposed to like the unemployment, the order about extending the extra unemployment benefits, because that’s a totally different system.With the Department of Education, they just kept all the loans at a 0% interest rate.
And that means we don’t have to make a payment, at least not until January 1st, unless it is extended or Congress comes up with another act. I’ve seen in the news where they are saying that hopefully Congress can come up with another act to extend the student loan deferment into 2021 but that’s left to be seen. What this means for you as a student loan borrower. First of all, if you have private student loans, you have other student loans, maybe you have the plus loan, the parents loan, the plus loan, you have other student loans that are not federal student loans.
You just out, you still have to make your payments. Your payments were not deferred. Please don’t miss your payments and fall behind thinking that your private student loans were included with these federal student loans. These were only federal student loans who have the deferment, who have the 0% interest rate. In the meantime, if you’re trying to buy a house and you have student loans, the underwriters will use one percent of your loan balance as your payment.
So, again, if you have $50,000 dollars in student loans, your minimum payment will be calculated as $500 dollars. For those of us with a real high balance. If you’ve got $100,000 dollars balance in student loans, your minimum payment will be calculated as $1,000. I went over this in a previous video.
Just because the student loans are deferred and presently our interest is zero does not change the way your student loan payments will be calculated when it comes to getting a mortgage. So don’t get confused by that. And especially if you’ve got private loans, you need to still be making your payments because this does not apply to you. Only federal student loans. The one good thing about us having the 0% interest rate right now on our federal student loans is if you make payments. If you are in the position where you’re still working and you haven’t been furloughed, you haven’t been laid off, your income has not been affected, any payments that you make on your student loans are going directly to principal.
There’s no interest. Our interest is zero percent right now. So if you have the ability to make payments on your student loan, I suggest you do that while this interest rate is zero. And that will put more towards principal because nothing is going to be going towards interest.
OK, I got this next question from one of my YouTube subscribers who called me. And this is something you need to think about, especially where the deferment is concerned. Should you come out of deferment just so you can consolidate your loans and go into the extended fixed repayment? You really have to weigh out what the difference in the payment is going to be and whether it affects your DTI.
First of all, I don’t recommend anyone come out of deferment. I don’t recommend anyone give up these months of deferment where you don’t have to make a payment just to go on the extended fixed plan just so you can get a house. I know you want to get a house. I know there’s other things you want to do. You want to get on with your life, but you need to do the math. You need to do the math and see how your debt to income is affected.
So if while you’re in deferment, they’re using 1% of your balance as the payment and let’s say on that, $50,000 dollars that’s a $500 dollar payment.
OK, then you have to calculate. Let’s say, that if you were to give up your months of deferment and go into repayment and you went into the extended fixed repayment plan, let’s say that payment was going to be $450 or $425. Let’s say, instead of $500, is that $75 dollars worth it? Well, if you if you can make your DTI work with the $500 dollars with them using the one percent payment, use it and stay in deferment, stay in deferment, don’t start.
You know what? There’s nothing certain in life but student loans and taxes at this point. You know you’re going to have to pay them anyway, so I just wouldn’t give up the free months of deferment if it was me. You just need to calculate the difference in the payment. If you can make that $500 dollar payment every month and it’s not hurting your DTI, stay in deferment and just take the 1%, let them use the 1% payment as your payment and go on and qualify for your loan that way. But at least your loans are still in deferment.
Again. My name is Rhonda Burgess and I’m a real estate broker here in Nashville, Tennessee. If you need help with finding a home here in Nashville, I would be I would love to help you. I would be glad to help you. You can download the Homescout app from your app store and use my VIP code 0832. And that will give you the all the MLS listings. And they are updated every 15 minutes.
Again, if you have any questions, you can feel free to give me a call. My number always is 615-554-0832. Thank you, and as always, have a blessed day.