Student Loan Plan Phase-Out May Impact Mortgage Affordability

As of July 1, over 7 million federal student loan borrowers have a 90-day window to transition from the Biden administration's SAVE income-driven repayment plan, which is being phased out. Launched in 2023 to reduce monthly payments and expedite loan forgiveness, the SAVE plan's discontinuation follows a broader restructuring of the federal student loan system. These changes are attributed to the Trump administration's "One Big Beautiful Bill Act," enacted in 2025, and a March 2026 federal court ruling that deemed the SAVE plan unconstitutional.

The overhaul of student debt repayment is anticipated to influence mortgage affordability for millions of borrowers with existing student debt as they seek to qualify for home loans. Increased mandatory student loan payments could diminish home purchasing power or postpone homeownership for some individuals by impacting their debt-to-income ratios. The specific repayment plan chosen by a borrower may also affect their eligibility for a mortgage.

While the Pay As You Earn (PAYE) plan, which remains accessible until July 1, 2028, continues to cap monthly payments, the Repayment Assistance Plan (RAP) bases payments on income and household size but lacks a maximum payment cap for higher-income borrowers. Borrowers currently enrolled in the SAVE plan must resume payments under a new plan within three months, in addition to their regular mortgage obligations and other housing-related expenses.

Donna Schmidt, president and CEO of DLS Servicing, stated that borrowers should have anticipated this transition, emphasizing the need for budgeting for loan repayment, similar to any other debt. Schmidt noted that while inflation was high at the SAVE program's inception (8% in 2022 and 4.13% in 2023), rates have since stabilized, falling to 2.9% in 2024 and 2.7% in 2025, suggesting it is time to return to standard repayment procedures. She added that former students received ample notification and should have prepared accordingly.