Democratic Reps. Gregory Meeks (N.Y.) and Nikema Williams (Ga.) want student loan borrowers to be able to purchase a home and have introduced the Making FHA Work for Borrowers with Student Debt Act of 2021.
The bill requires the Federal Housing Administration (FHA) to more fairly treat student borrowers seeking an affordable mortgage through the FHA’s insurance program. The bill does that by reforming FHA’s guidelines so student borrowers, particularly those enrolled in student loan repayment programs that lower their monthly obligations, are judged by their ability to repay a mortgage based on what they pay in monthly loans.
The FHA currently does not consider a potential homeowner’s participation in an income-driven student loan repayment plan when determining their debt for underwriting purposes. This cuts access to an FHA loan for low-to-moderate-income individuals who are paying off their loans.
Rep. Meeks said in a statement the FHA treats many Americans unfairly considering they are going to college to improve their lives and own a home in the future.
“This student debt penalty disqualifies home-ready borrowers from a program that generally promotes homeownership,” Meeks said. “Under the current system, many young people, especially those young people of color, miss out on one of the greatest wealth building opportunities because they pursued higher education. We should do all that we can to promote wealth building and homeownership among young people and communities of color and removing this student debt penalty is a critical step in that direction.”
Many Americans take out student loans to pay for college but if they don’t finish, or finish but can’t find a job to pay the loan back, they typically default on the loans which will follow them around for the rest of their lives and effectively cut them off from homeownership, which is one of the most tried and true ways to build wealth in the U.S.
“To close the wealth gap in the Fifth District and our country, young adults need to have the chance to buy a home and make other investments in their future. Unfortunately, crushing student loan debt puts this out of reach for too many. We have to do all we can to break down barriers to homeownership for individuals with student debt,” Williams said in a statement. “I am proud to join Congressman Meeks in introducing this commonsense bill to ensure student loan borrowers get a fair assessment of their student debt obligations when applying for a mortgage backed by the Federal Housing Administration. I’m proud to help lead this legislation to ensure the next generation of homebuyers has a fair shot at mortgage approval and ultimately homeownership.”
Student debt is the third-highest debt Americans carry at more than $1.5 trillion. President Joe Biden has suspended student loan payments through October due to the coronavirus pandemic, but he still hasn’t released his plans to deal with student debt.
Progressive Democrats including Sens. Elizabeth Warren (D-Mass.) and Chuck Schumer (D-N.Y.) want Biden to cancel $50,000 in student loan debt. Biden has discussed forgiving $10,000 in student loan forgiveness. However, Biden left student loan forgiveness out of his budget, instead, he asked White House lawyers to look into the possibility of using an executive order to cancel student debt and directing the Department of Education to seek alternative options to dealing with student loan forgiveness.