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Starting in October, federal <a href="https://fortune.com/2023/06/07/40-million-americans-restart-student-loan-payments-experts-fear-levels-default-never-seen-before/">student loan borrowers</a> will resume their debt repayment obligations after enjoying over three years of paused payments. According to a recent <a href="https://www.zillow.com/research/student-loan-affordability-32871/">report by Zillow</a>, the typical student loan borrower deferred approximately $15,000 in student loan payments during this pause. However, even with this temporary financial respite, many are still struggling to enter today’s challenging housing market.<div class="paywall-selector"></div><div class="paywall">



Indeed, the principal and interest mortgage payments on a typical new home loan has more than doubled since the student loan payment pause began in March 2020, according to <a href="https://fortune.com/company/zillow-group/" target="_blank">Zillow</a>. That increase is driven by the fact that during this time frame the average 30-year fixed mortgage rate spiked from 3.5% to over 6%, while U.S. home prices surged over 40%.



The housing affordability squeeze is so pronounced that even savings accrued from over three years without having to pay federal student loans still isn’t sufficient to cover a down payment in most markets. 



Zillow suggests that first-time homebuyers, on average, need about 5% of the amount of their loan for a down payment. For example, a starter home in Boston could cost around $700,000, according to Zillow, meaning that first-time homebuyers would need to come up with more than $30,000 for a down payment. That’s more than double the average amount student loan borrowers saved during the pandemic.



Debt-to-income ratios are also a barrier for first-time homebuyers with student loans. While borrowers, in theory, could have saved thousands of dollars during the 3.5-year payment pause, there are no real indicators that borrowers’ debt-to-income (DTI) ratios improved, Stacey MacPhetres, senior director of education finance at <a href="https://www.brighthorizons.com/edassist-solutions">EdAssist</a> by Bright Horizons, a student loan advising and educational benefits company, tells Fortune. 



“There is no real indication that DTIs improved during the pause. In fact, a new paper published by the <a href="https://www.nber.org/">National Bureau of Economic Research</a> indicates that many borrowers increased their personal debt on credit cards, mortgages, and auto loans during the pause,” MacPhetres says. “It is possible some of this can be attributed to the high cost of inflation. But also, when consumers have available cash flow, spending often does increase.”



A high DTI and the rising cost of inflation can also make it more difficult to afford all potential expenses associated with buying a home, including a down payment, mortgage, mortgage insurance, closing costs, utilities, maintenance, and homeowners fees, she adds.



In fact, mortgage lenders typically set a cap of 36% DTI for borrowers with conventional mortgages and 43% for FHA loans, according to Zillow. This means that the sum of the borrower’s debts including the new monthly mortgage payment, taxes, insurance, and private mortgage insurance—as well as other debts such as car payments or student loans—can’t exceed 36% to 43% of a borrower’s household income.  



“That limit can be met quickly in a market with high home values, high mortgage rates, and compounding existing debts, making affording a home an uphill battle,” according to Zillow.



<h2 class="wp-block-heading">There could be hope for first-time homebuyers with a new income-driven repayment plan</h2>



Income-driven repayment (IDR) plans set a borrower’s student loan payment at an affordable amount based on income and family size. The <a href="https://studentaid.gov/">Federal Student Aid</a> office offers <a href="https://studentaid.gov/idr/">four different IDR options</a>, which limit monthly dues to only 10% to 20% of a borrower’s income. Rates are established to help borrowers pay off their loans during a 20-year to 25-year period.



“In general, borrowers need to make sure student loans aren’t an obstacle to qualifying for a house,” Travis Hornsby, founder of <a href="https://www.studentloanplanner.com/">Student Loan Planner</a>, tells Fortune. “The most common way we see loans mess up qualifying is when a borrower isn’t enrolled in an income-driven repayment plan. If you‘re on an IDR plan, you’ll probably qualify for what you’d qualify for without loans.”



In late June, the Department of Education announced an additional IDR option, the <a href="https://www2.ed.gov/policy/highered/reg/hearulemaking/2021/idrfactsheetfinal.pdf">Saving on a Valuable Education Plan</a>, which reduces payments to just 5% of discretionary income. This, in turn, could lower average payment sizes by $245 less per month, according to Zillow.



This upcoming change could help some borrowers improve their DTI ratio and make it more feasible to afford a home, says Kurt Carlton, cofounder and president of <a href="https://www.newwestern.com/">New Western</a>, a private marketplace for residential investment properties.



“Additionally, if they have retained a significant portion of their paused payments as savings, it could alleviate the down payment hurdle many borrowers face or at least provide a responsible amount of funds to cover unexpected maintenance and expenses if things go wrong during homeownership,” he tells Fortune.&nbsp;



However, both housing and student loan experts agree that evaluating one’s entire financial situation is critical when considering buying a home.&nbsp;



“With monthly student loan payments reduced by 69% on average, some households may qualify for conventional mortgages with a more favorable debt-to-income ratio,” Carlton says. “However, it’s essential for borrowers to monitor their financial situation and make informed decisions when planning major purchases.”</div>

The savings accrued from over three years without having to pay student loans still isn’t sufficient to cover a down payment.

Zillow: Student loan borrowers had 3.5 years without payments, yet many still can’t afford to break into the housing market

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