Recently I’ve had a few borrowers who have just graduated from college and are trying to buy their first home or refinance their current mortgage.
Unfortunately their debt-to-income ratio (DTI) is too high due to numerous student loans.
Years ago when I graduated from college, there were loan consolidation programs available — However, in April 2008, Sallie Mae announced that they will discontinue their federal loan consolidation program effective May 9, 2008.
There are a few private loan consolidation programs available so check with your lender to see if your program still qualifies some type of loan consolidation program.
Anyway, I called Sallie Mae to find out what options are available for recent graduates who need to lower their monthly debt obligations but can no longer do a loan consolidation and they gave me a few options that I thought would be worth sharing:
- Increase terms of the loans: Most federal and private student loans have an average repayment schedule of 120-180 months (10-15 years). Sallie Mae has increased the terms on some borrower’s loans to 25-30 years. What does this mean to the borrower? It means paying lower monthly payments over a longer period of time. This can translate into higher costs over the long run, but some graduates who are just getting started and need lower payments, this might be an option for them.
- Interest Only Payments (aka Graduated repayment): This program allows graduates to make interest only payments for up to 4 years before they resume principle and interest payments. This can help reduce monthly payments for up to four years while the graduate starts to earn more money after graduation. However, this can translate into higher costs due to the principle amount being paid over a longer period of time.
With the cash crunch that is currently going on (everything seems to cost just a little more lately, doesn’t it?) and seeing lenders tightening credit guidelines, it is important for borrowers to do what they can to lower their overall debt-to-income ratio if they wish to refinance or purchase a home.
Perhaps some of the lower payment options mentioned above might help you?