Student loan plan phase-out could tighten mortgage affordability

For the housing market, the student debt repayment overhaul could reshape mortgage affordability for millions of borrowers with student debt as they attempt to qualify for mortgages. Higher required student loan payments may reduce home purchasing power or delay homeownership for some borrowers by factoring into debt-to-income ratios.

The choice of repayment plan could also influence borrowers’ ability to qualify for a mortgage. The Pay As You Earn (PAYE) plan, which remains available until July 1, 2028, continues to cap monthly payments. Meanwhile, the Repayment Assistance Plan (RAP) bases payments on income and household size but has no maximum payment amount for higher-income borrowers.

Existing borrowers, however, will need to resume payments on a new plan in three months, on top of regular mortgage payments and other costs associated with housing.

Borrowers ‘should have planned accordingly’

Donna Schmidt, president and CEO of DLS Servicing, says that borrowers should have been prepared.

“Just like any other debt, a borrower must establish a budget to pay back borrowed funds,” Schmidt said. “While inflationary pressure had been escalating when the SAVE program was established (8% in 2022 and 4.13% in 2023), inflation rates have stabilized, dropping to 2.9% in 2024 and 2.7% in 2025. It is time to get back to regular order.”

Schmidt says that former students had “plenty of notice and should have planned accordingly.”

“From a mortgage servicer’s perspective, this may put additional pressure on borrower budgets, but this should be outside the mortgage obligation,” she added.

But existing data paints a different picture. According to data from the Federal Reserve Bank of New York, delinquency rates across mortgages, credit cards, auto loans and student debt reached 4.8% of outstanding household debt in fourth-quarter 2025, their highest levels in nearly a decade.

According to the New York Fed’s Q1 2026 data, student loan borrowers continued to face repayment challenges early this year, although fewer fell into serious delinquency than a year earlier. The share of borrowers transitioning into serious delinquency declined to 10.9%, down from 16.2% in the prior quarter, suggesting the pace of new payment problems has begun to slow.

Despite that improvement, the share of student loan balances at least 90 days past due rose to 10.3%, up from 9.6% in the previous quarter. About 2.6 million borrowers who were more than 120 days delinquent had their loans transferred to the U.S. Department of Education‘s Default Resolution Group.

“That’s existing data right before this happened,” Phil Crescenzo Jr. of NFM Lending said in reference to the New York Fed’s data. “So now you have seven and a half million more people that the budgets get strained a little bit or a lot. They’re different than what they were a month ago — and they will be going forward.”

Crescenzo noted that since many student loan repayment plans have placed loans in forbearance, especially following COVID-19, the payments have effectively fallen out of borrowers’ mental and practical budgets.

“You can’t ignore these things,” he said. “They give borrowers 90 days to decide on a new program or plan. That’s plenty of time to respond, but it’s not a lot of time if you’re blowing off notices and not really keying in on the dates.”

Crescenzo said borrowers with multiple small student loans are especially vulnerable. Each loan can report a 90-day delinquency, leading to several serious late marks hitting a credit report at once.

“Now you’re going to have four 90-day lates,” he said. “Good luck trying to overcome that on a mortgage approval. A drop of 40 to 100 points [in a credit score] is easy when that happens.”

Need for proactive analysis, education

The consequences are not evenly felt across loan products. Crescenzo said Federal Housing Administration (FHA) borrowers face a “hard stop” if they incur serious student loan delinquencies, often triggering a two-year waiting period before they can qualify again. Department of Veterans Affairs (VA) loan guidelines have shown somewhat more tolerance in select cases, he added.

Jane Mason, CEO and founder of Clarifire, said that the mortgage industry needs to be more “proactive” in looking at a borrower’s whole credit history and portfolio, especially today.

“I’m encouraging our industry to make sure that they’re more proactive,” Mason said. “Look at the escrow analysis contact and use that as an opportunity… so that the borrower is getting more help earlier on, before delinquency really sets in.”

Like Crescenzo, Mason is concerned about how the end of SAVE will impact credit reports.

“We need to look at what the credit companies are reporting and encourage mortgage servicers to pull credit reports more often to proactively help a borrower who has student loan debt that also has a mortgage,” she said.

Mason, who is based in Florida, is especially concerned given the preexisting high costs and high risks associated with homes in the Sunshine State.

“The property insurance is out of control in the state of Florida, and the property taxes are increasing because our values skyrocketed during COVID-19. … We’ve had two hurricanes and so many people have not received FEMA aid, so now we’re seeing delinquencies, especially in the area of FHA, and I think there’s going to be more of that.”