For most graduates, student loans were the only way they could afford college tuition and now, it will prevent them from being able to afford much more. The average individual student loan debt is just over $32,000 and is put on a traditional repayment plan that expands over the next ten years. Taking interest payments into consideration, that can be about $300-$350 each month dedicated solely to student debt payments. For many, this is too high of a payment and an income-driven debt repayment plan is established, significantly lengthening the term of the loan and the amount of interest it will accrue over the life of the loan.
When applying for a home loan, or just checking to see if you can even pre-qualify, the lender will examine your debt-to-income ratio as well as other factors like your credit score and employment status. The debt-to-income ratio compares the total of an applicant’s outstanding debt to the income they have coming in and using that number to determine how much of a home loan the applicant can afford. Often, the debt-to-income ratio is too high because of the large student loan balance (that is for some, higher than they may be earning) to qualify for most mortgage loan programs.