Part II: Calculating Student Loan Payments for USDA, FHA & VA

Written By: NAMP® Op-Ed Ghost Writer

2016 has seen numerous changes in guidelines for reviewing student loan qualifying payments. In this two part series, N.A.M.P. and N.A.M.U. will provide tools for processors and underwriters to use when determining which calculation should be used for qualifying student loan payments. Part I reviewed Fannie Mae and Freddie Mac’s guidelines. We continue this series by exploring USDA, FHA and VA rules. 

On March 31, 2016 USDA Rural Development (RD) issued a bulletin entitled “Student Loans and their Impact on the Total Debt Ratio”. In this bulletin the student loan calculation for USDA loans was broken out into two categories: fixed payment loans and non-fixed payment loans.
The lender may use the fixed payment established on student loans when the lender obtains documentation verifying the payment, interest rate, and loan term will not adjust. As a result, using the payment listed on the credit report without third party verification from the student loan servicer that the credit report payment is the fixed payment is not acceptable. 

If the borrower’s student loan is deferred, in forbearance, on an Income Based Repayment (IBR) plan, or on any kind of graduated/adjustable plan, the lender must use 1% of the outstanding balance to qualify. No additional documentation is required in these cases. If the lender wishes to use 1% of the outstanding balance instead of verifying the credit report payment is fixed, this will satisfy USDA’s requirements.

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The HUD Single Family Housing Policy Handbook 4000.1 outlines the requirements for evaluating student loan debts under the Credit Requirements (TOTAL) and Credit Requirements (Manual) sections. FHA states that all student loans, regardless of payment type or status must be included in the qualifying ratios. Regardless of repayment status, the lender must use the greater of 1% of the outstanding balance, or the payment listed on the credit report. If the lender wishes to use any other payment, it must be documented as the fully amortizing payment with letters, installment agreements, or other relevant documentation from the student loan servicer. 

VA’s Lender Handbook Chapter 4: Credit Underwriting outlines their guidelines for deferred student loan payments under Section 5: Debts and Obligations. VA requires the lender to include student loan payments for any loan that is scheduled to begin repayment within 12 months of closing. If the borrower can provide evidence that the debt will be deferred for more than 12 months from closing, the debt need not be included in the qualifying ratios. 
Other than that specific guidance on deferred student loans, the VA Handbook is silent on the treatment of student loan obligations. As a result, student loans reporting on credit that do not fall under the deferred student loan guidance will be treated the same as any other installment debt.

As always N.A.M.U. and N.A.M.P. encourages all mortgage professionals to research agency guidelines for the most current rule. Guidelines are subject to change at any time and the information in this article is only applicable up to the date of any subsequent changes. 

About The Author

All of NAMP® op-ed writers are veteran mortgage processing & underwriting instructors for CampusUnderwriter ( They have each conducted numerous mortgage processing & underwriting training classes and have worked in the mortgage banking industry for 25+ years. If you're interested in becoming a writer for NAMP®, please email us at:

Opinion-Editorial (Op-Ed) Disclaimer For NAMP® Library Articles: The views and opinions expressed in the NAMP® Library articles are those of the authors and do not necessarily reflect any official NAMP® policy or position. Examples of analysis performed within this article are only examples. They should not be utilized in real-world application as they are based only on very limited and dated open source information. Assumptions made within the analysis are not reflective of the position of NAMP®. Nothing contained in this article should be considered legal advice.