Apr 13, 2021
If you’re one of the millions of Americans paying off student loans, you could see some of that debt disappear if you buy a home in certain parts of the country.
Some state mortgage programs are offering borrowers thousands of dollars in student debt relief in hopes of luring new homebuyers and increasing homeownership rates among people with low and moderate incomes. Often, down payment assistance is provided, too.
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The student loan payoff help is real and available right now — as opposed to reports President Joe Biden may cancel up to $50,000 in federal student loan debt per person. So far, that’s just talk; an actual plan is far from certain.
Illinois dangles up to $40K in student debt relief
Illinois recently launched a $25 million mortgage program that provides borrowers with up to $40,000 to pay off their student loans.
A participant in the SmartBuy program also gets a 30-year fixed-rate home loan — to take advantage of today’s historically low interest rates — plus $5,000, 0% loan that can be used toward a down payment or closing costs.
The student loan component will pay off up to $40,000 in student debt, or a student loan balance equal to 15% of the home’s purchase price — whichever is lower.
The Illinois program requires you to live in the house, which must be your primary residence, for at least three years; otherwise, you may have to pay back some of the assistance. There's also a cap on household income and a maximum limit on the purchase price of the home.
Borrowers also must be able to pay off their full student loan balance. If the $40,000 is not enough to wipe out your entire college debt, you must cover the balance yourself. Partial payoffs are not allowed.
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And, to sign up you must have a credit score of at least 640. If you’re not sure where your credit score stands, it’s very easy today to check it for free.
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What other states are offering
Maryland also has a SmartBuy program allowing residents to purchase a home while paying off student debt.
The state provides up to 15% of a home’s purchase price so a borrower can pay off outstanding student debt, with a maximum payoff of $30,000.
The full student debt must be paid off at the time of the home purchase, and homebuyers must meet eligibility requirements.
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Other statewide programs that are not related to mortgages extend student debt assistance to residents if they work in certain professions or live in specific areas.
- Kansas offers student loan repayments of up to $15,000 to residents of the state's rural counties.
- Texas has multiple programs for student loan borrowers in specific professions, including educators. Teachers who work in certain areas are eligible for up to $2,500 in loan repayment assistance for up to five years.
- In Iowa, teachers and health care workers in rural, high-need areas can take advantage of several programs that help with student loan debt. Doctors who practice in rural sections of the state, for example, can qualify for up to $40,000 in annual loan repayment assistance for up to five years.
What if you don't qualify — and need student debt relief?
Americans owe over $1.7 trillion of student loan debt, up nearly 30% from 2015, according to the Federal Reserve. If you’re one of the millions saddled with some of that debt, but you're not eligible for one of the state programs, you have other options.
First, you’ll want to look into refinancing your student loan into a lower rate. Student loan refi rates have been hitting all-time lows. Since the government doesn’t offer refinancing, a refi of a federal student loan would mean replacing it with a cheaper loan from a private lender.
If a refinance wouldn’t work for you but student loan payments are crushing your budget, look for ways to ease some of that pressure. Try reducing your car insurance premiums by shopping around for a better deal when your policy comes up for renewal. Studies have shown you might easily save hundreds per year.
Or, you might earn some returns from the record-shattering stock market — by using a popular app that helps you invest your “spare change”.
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Nancy Sarnoff is a freelance contributor with Moneywise. Previously, she covered commercial and residential real estate for the Houston Chronicle where she also hosted Looped In, a podcast about the region’s growth, development and economy. Her work has been recognized by the National Association of Real Estate Editors and the Society of American Business Editors and Writers.
