FAQs: Student Loan Debt Requirements (Sep. 2022)

Student Loan Debt Requirements: Scenarios and FAQs

Updated: 09/12/2022

To support our customers in understanding student loan requirements, see below for scenarios and FAQs related to the following student loan topics:

• Student Loans in Deferment or Forbearance
• Student Loan Payment Calculation
• Income-driven and Graduated Payment Plans
• Derogatory Student Loan Debt
• Student Loan Debt Paid by Others
• Student Loan Cash-Out Refinance Option

Note: Changes since the last update are marked either NEW or UPDATED. Minor (non-substantive) wording, number, and heading changes are not marked. 

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Student Loans in Deferment or Forbearance

Scenario: Student loan in COVID-related automatic forbearance.

1. If the borrower has a federal student loan that is in a COVID-related automatic forbearance, can the monthly payment be excluded from the borrower’s DTI ratio if it has been paid by another party?

Scenario: Student loan in deferment or forbearance. 

2. If a student loan is in deferment or forbearance, can the payment amount be excluded for qualifying? *

Scenario: Multiple student loans in forbearance. 

3. If a borrower has multiple student loans in deferment or forbearance, should these payments be calculated separately or combined? *

Scenario: Previous payment before automatic loan forbearance. Credit report reflects income-based repayment.

4. How should I treat non-mortgage debt (for example, student loans, auto loans, etc.) currently in forbearance or deferment?  

Student Loan Payment Calculation

Scenario: Credit report reflects $0 payment or is missing. Confusion with credit report payment compared to outstanding loan balance.

5. What is required for a student loan monthly debt obligation?

Scenario: Borrower has multiple student loans and repayment terms are unknown. 

6. Are lenders allowed to manually calculate an estimated student loan payment when the repayment terms are unknown? *

Scenario: Credit report does not reflect correct payment.

7. What if the credit report does not reflect the correct student loan monthly payment and there is documentation in the file to support a different monthly payment? *

Scenario: Less than 10 months payments remaining.

8. What is required for installment debt?

Scenario: Student loan forgiveness, cancellation, or discharge.

9. Can a student loan be excluded from the DTI ratio if it was forgiven, canceled, or discharged? * UPDATED

Income-Driven and Graduated Payment Plans

Scenario: Student loan on income-driven repayment (IDR) plan.

10. What is the policy on income-driven repayment plans for student loans? *

Scenario: Income-driven payment plan is expiring. Graduated payment plan is changing.

11. For student loans in an income-driven repayment plan or graduated repayment plan, do I need to consider the expiration date when determining the qualifying payment? *

Scenario: Income-driven payment plan shows $0 on the credit report.  

12. How are student loan payments calculated if the monthly IDR plan is $0?

Derogatory Student Loan Debt

Scenario: Student loan is in collection or garnishment.

13. Are there separate requirements for student loans that are in collection or garnishment, versus other debt types? *

Scenario: Student loan is past due.

14. What does DU require for past-due accounts?

Student Loans Debt Paid by Others

Scenario: Excluding student loan debt paid by others.

15. For student loan debts paid by others, what evidence needs to be provided?

Scenario: Partial student loan payment paid by others.

16. For debts paid by others, if only a portion of the debt is paid by another party, can that portion be excluded in the DTI ratio? *

Student Loans Cash-Out Refinance Option

Scenario: Paying off a student loan with a cash-out refinance option.

17. What is the student loan cash-out refinance option? *
18. What is required when paying off student loans with a refinance?

Scenario: Partial student loan debt pay-off with cash-out refinance option.

19. Can part of a student loan debt be paid off with the cash-out refinance option? *

Scenario: Ensuring student loan(s) are paid in full at closing.

20. How can I ensure that student loans are paid in full for a student loan cash-out refinance? *

Scenario: DU instructions for paying off a student loan.

21. How does DU determine if an installment loan being paid off with the cash-out refinance transaction is a student loan? *

Scenario: Texas Section 50(a)(6) loans.

22. Are Texas Section 50(a)(6) loans eligible under the student loan cash-out refinance offering? *

Scenario: General Technical Considerations

23. Are there any technical considerations for a student loan cash-out refinance? *

Additional Resources

• COVID-19 Selling FAQs
• Lender Letter LL-2021-03, Impact of COVID-19 on Originations
• B3-6-05, Monthly Debt Obligations
• B3-6-07, Debts Paid off At or Prior to Closing
• B3-5.3-09, DU Credit Report Analysis
• B2-1.3-03, Cash-Out Refinances Transactions