As more Americans attend four-year colleges and universities, an increasingly large amount are taking on student loan debt to fund their education. Student loan debt can understandably feel like a burden, but it doesn’t have to prevent you from achieving your dreams of homeownership.
A USDA loan can be a great tool to help recent graduates acquire their first home. While you are required to report any student loan debt in your application, having student debt alone will not cause a lender to automatically reject you.
The United States Department of Agriculture (USDA) offers several loan programs to help students pay for college. As we head into 2023, it’s important for students and families to understand the latest USDA student loan guidelines.
Overview of USDA Student Loans
The USDA administers a few different types of student loans, including:
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Direct loans – These are funded directly by the USDA and include Direct Subsidized, Direct Unsubsidized and Direct PLUS loans.
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FFEL loans – Also known as Federal Family Education Loan Program loans These are funded by private lenders but guaranteed by the USDA
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Perkins loans – Low-interest federal student loans for undergraduate and graduate students with exceptional financial need.
All USDA student loans have limits on how much you can borrow each year and over your lifetime. Interest rates vary by loan type.
Key Guidelines for 2023
As you navigate USDA student loans for the 2023 academic year, keep these key guidelines in mind:
Interest Rates
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For undergraduates, the interest rate on Direct Subsidized and Unsubsidized loans will be 4.99%, down from 5.28% in 2022.
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The interest rate on Direct PLUS loans for parents and graduate students will be 7.54%, down from 7.54% last year.
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Rates on existing variable rate loans may change, depending on market conditions. Check your loan servicer’s website.
Loan Limits
The maximum amount you can borrow in Direct Subsidized and Unsubsidized loans per academic year:
- $5,500 for dependent undergraduates (up from $5,500 last year)
- $9,500 for independent undergrads (up from $9,500)
- $20,500 for graduate students (up from $20,500)
The limit on Direct PLUS loans equals your cost of attendance minus any other financial aid received.
Origination Fees
The origination fee on all Direct loans will be 4.228% for loans first disbursed between October 1, 2022 and September 30, 2023. This is up from 4.228% last year.
Repayment Plans
USDA offers several repayment plans including standard, graduated, extended, income-driven, and public service loan forgiveness. Income-driven plans tie your payment to your income and family size.
New borrowers can now enroll in an income-driven plan as early as 30 days after the first disbursement, instead of waiting the normal 6 months.
Forbearance and Deferment
Deferment allows you to temporarily postpone payments due to things like unemployment or continuing education. Forbearance is also an option but interest continues accruing.
The interest-free pandemic forbearance on federal student loans has been extended through December 31, 2022.
Loan Forgiveness
Borrowers in certain public service fields may be eligible for loan forgiveness after meeting program requirements. Temporary expansions to the Public Service Loan Forgiveness program are in place through October 31, 2022.
Delinquencies and Default
To avoid delinquency or default, stay on top of your required monthly payments. Contact your servicer immediately if you anticipate any difficulty making payments.
Applying for Aid in 2023-2024
If you plan to take out new USDA student loans for 2023-2024, make sure to complete the FAFSA® form as close to the October 1 opening date as possible. This helps ensure maximum aid eligibility.
Monitor your financial aid award letters closely and borrow only what you absolutely need in responsible loan limits. Find out if you qualify for any scholarships, grants, work-study, or other ways to reduce potential loan debt.
With a little planning and preparation, USDA student loans can be an affordable way to fill gaps in your college financing package. Follow the latest guidelines and borrow wisely.
USDA Loan with Non-Fixed Rate Student Loans
Non-fixed rate student loans require slightly more consideration than their fixed rate counterparts, as they have a variable interest rate that changes over the lifetime of the loan. According to USDA guidelines, with all non-fixed rate student loan types, USDA loan lenders must use the greater of the following:
- The payment amount reported on the credit report or the actual documented payment, or
- One-half (0.5 percent) of the outstanding loan balance documented on the credit report or creditor verification.
USDA lenders must determine the value of both options before deciding which to use in their overall calculation of your total DTI ratio. For example, you may pay $100 towards your student loans every month. Meanwhile, 0.5 percent of your $30,000 loan balance is $150. Since $150 is the larger value, the lender would use that figure.
Will my student loans prevent me from getting a mortgage?
Student loans are not a disqualifying factor when applying for a USDA loan. There is technically no standardized amount of student loan debt that will prevent you from being approved for a USDA loan.
Your debt comes into play when lenders check your debt-to-income (DTI) ratio. Your DTI ratio is mostly what it sounds like; a lender can compare how much debt you’re responsible for versus how much income you bring in monthly. However, your DTI ratio is actually a combination of two ratios: PITI and total DTI.
PITI stands for principal, interest, taxes, and insurance, and it represents how much housing debt you pay off each month as a percentage of your gross monthly income. Conversely, total DTI demonstrates the ratio of your major monthly debts to gross monthly income, including your student loan debt.
Along with student loans, other debts factored into your total DTI ratio include personal loans, credit cards and car payments. A USDA lender will not approve an applicant with a total DTI over 41%. Smaller debts like phone bills, utilities and insurance premiums are not included.
2023 USDA Loan Requirements – Complete Guide For First Time Home Buyers
FAQ
Does USDA use 1% of student loans?
What is the minimum credit score for USDA 2023?
What are the new student loan guidelines?
Will they take my taxes for student loans in 2023?
Is USDA an Equal Opportunity Lender?
USDA is an equal opportunity provider, employer, and lender. FAQ Frequently Asked Questions Single-Family Housing Guaranteed Loan Program Origination Revised April 1, 2024 Page 2 Frequently Asked Questions (FAQ)
What percentage of a student loan should be paid?
One half (.50) percent of the outstanding loan balance documented on the credit report or creditor verification, when the payment amount is zero. Student loans in the applicant’s name alone but paid by another party remain the legal responsibility of the applicant. The applicable payment must be included in the monthly debts.
What percentage of a student loan should be reported on credit report?
0.5 percent of the outstanding loan balance, when the monthly payment reported on the Borrower’s credit report is zero. Student loan refers to liabilities incurred for educational purposes. The mortgagee must include all student loans in the expense analysis, regardless of the payment type or status of payments. servicer.
What is a student loan in a mortgage?
Student loan refers to liabilities incurred for educational purposes. The mortgagee must include all student loans in the expense analysis, regardless of the payment type or status of payments. servicer. 0.5 percent of the outstanding loan balance, when the monthly payment reported on the borrower’s credit report is zero.