Student Loan Repayment Issue

July 28, 2023

Student Loan Payments Restart October 1, 2023

High debt loads are a common occurrence for Americans from all walks of life.

That high debt combined with very high rent prices and cost of living, has reduced the number of high-quality renters able to handle today’s rent prices.

When debt increases happen, it serves to reduce your targeted renter pool which in turn affects your business outlook. Your tenant acquisition channels will need to work better to reach financially qualified renters.

Going forward in 2024, those with student loan repayment challenges (40% of renters) looming means they may have difficulty qualifying for a rental unit. Their debt-to-income ratios will go above set thresholds and rising rates means they’ll face higher loan repayments. The question for landlords is how to deal with this growing challenge effectively.

Student Loans Create an Extra $350 per Month on Average

However, there are good reasons for us all to take more time in screening applicants and avoid broad discrimination actions such as unrealistic credit ratings and super high debt-to-income thresholds. It might be wise to focus on payment history and overall intent to pay to improve your renter pool.

For instance, if they’ve paid rent and utilities reliably, have kept good communications with their previous landlords and are transparent with you, then they may be able to weather the repayment issue.

And it brings up the issue of lifestyle and spending habits. These provide key additional clues as to whether they intend to live within their means and pay their rent. Because plenty of renters with good incomes have spending habits that could collapse them at any point.

Is this issue more about spending habits than debt-to-income ratios?

Student Loan Repayments begin October 1st, 2023

According to a CNBC report, the average monthly payment for those with student loan debt is $350 per month, an amount they were happy to avoid during the pandemic.

President Trump introduced the payment holiday in 2020, and it’s been extended 8 times since. Of course, the payment reprieve was critical to avoid a financial catastrophe during the pandemic period. CNBC estimates the payment holidays saved debt holders about $15,000 during the last 3 years.

Congress and Supreme Court Prevent the Loan Payoff

President Biden promised to negate the loans altogether, but that motion was turned aside by US Congress and was further rejected by the Supreme Court. The plan for a $10,000 payoff or a full payoff is scrapped.

His SAVE plan aimed to raise the amount of income protected from repayment from 150% above the federal poverty line to 225% above. That would give monthly payments of $0 for a single person earning less than $32,805 annually. Families of four who earn less than $67,500 would also have their debt paid off.

His administration is looking for additional ways to reduce debt holders’ repayment pain.

40 million Americans have student loan debt and a good portion of them are renters. Some have argued that debt-free former students will then be able to build a downpayment to qualify for a 7% for a high-priced home loan during a credit-tightening period. It’s unlikely they’ll qualify to buy homes anytime soon. Many of them will be lifetime renters.

The good news is that most student debt holders may be able to re-amortize their loans to extend the repayment period, which can then reduce monthly payments.

How To Screen and Manage High-Debt Students

To qualify a high student loan debt applicant for your rental unit, you may want to:

assess the amount of their student debt and monthly payments? Have they re-amortized already?
is their job secure, is it a sustainable area of employment, and does this person have a history of salary rises?
what is your assessment of the company they work for?
what is their credit score and are there signs of struggling to pay their student loan?
is their rent-to-income ratio near the upper limit as 2024 nears?
what efforts have they taken to pay off any troublesome debt which mars their credit rating?

It’s wise to review the fair housing rights and obligations laws to understand how to not violate those with student debt. In the end, a review of the applicant’s lifestyle, spending habits, and intent to pay shown in the material they provide to you, can be pivotal to prove they’re a quality candidate for your rental home may be a wise business move.

Find out more about how to optimize student housing management with ManageCasa™.

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