The Department of Education’s newly launched income-driven repayment (IDR) program, “Saving on a Valuable Education (SAVE),” represents a significant step forward in improving the affordability of federal student loan repayments for millions of borrowers. SAVE accomplishes that goal by basing repayment on a realistic estimate of a borrower’s discretionary income considering the borrower’s family size and reducing the amount of income that applies to repayment by half. The plan also prevents unpaid interest from increasing a borrower’s loan balance and ensures that any remaining balance is forgiven after a certain number of years. Based on these changes, researchers have found that the SAVE program will improve the financial security of millions of borrowers by requiring them to repay less of their student loan debt and achieve full federal student loan forgiveness faster.

Yet, to date, little public analysis exists on how the program will impact other aspects of financial security for affected borrowers, such as their ability to access and sustain wealth-building financial products like business capital loans and mortgages. However, recently released research by the Center for Responsible Lending (CRL) seeks to answer that question, in part, by examining the SAVE program’s impact on homeownership for federal student loan borrowers. The report, “Unveiling the Potential of Saving on a Valuable Education,” finds that SAVE could expand access to mortgage credit for federal student loan borrowers in two important ways:

  • First, by reducing monthly repayment amounts, the SAVE program could allow borrowers to increase savings for a mortgage down payment; and
  • Second, the reduced monthly payment amount should create a corresponding reduction in a borrower’s debt-to-income (DTI) ratio — a key calculation used in underwriting that determines whether an individual qualifies for a home loan.