Proposed Loan Repayment Plan Offers Hope For Low-Income Borrowers’ Path To Homeownership

The SAVE plan aims to substantially decrease monthly loan payments for borrowers.

The Biden Administration’s recently proposed repayment plan, known as the Saving on A Valuable Education (SAVE) plan, has the potential to significantly assist low-income loan borrowers in achieving their aspirations of homeownership.

As outlined in a recent report by the Center for Responsible Lending (CRL) and California Policy Lab (CPL), the SAVE plan aims to substantially decrease monthly loan payments for borrowers, thereby improving their debt-to-income ratio. This improvement could enhance an individual’s chances of qualifying for a mortgage loan. Notably, the repayment structure under the SAVE plan would be tailored to borrowers’ income levels and family sizes, providing a more manageable approach to loan repayment.

“The recent student loan crisis, as well as higher mortgage rates, have prevented younger and low-income borrowers from accessing this wealth-building mechanism,” said senior researcher at CRL Christelle Bamona, who co-authored the report. “It is critical for the administration and federal agencies to work together to implement underwriting standards that accurately reflect borrowers’ payment obligations. Effectively adjusting the way DTI is calculated will contribute to a healthier and more vibrant economy that benefits all Americans.”

The idea first arose in 2023 after the White House proposed the system. If successful, this plan has the potential to substantially impact the financial growth of loan borrowers, allowing them a greater chance to acquire homeownership and close the economic gap among Americans. Still, for this to occur, the CRL has emphasized that the underwriting criteria for federally insured mortgages “must reflect actual payments.” Experts who worked on the study the study have discussed just how effective this plan could ultimately be.

“SAVE will protect more borrowers’ incomes and help them achieve homeownership, especially if complementary policy changes are implemented in mortgage underwriting,” said Lucia Constantine, a researcher at the CRL who also co-authored the report. “Our analysis found that enrolling in SAVE could provide a needed boost toward homeownership for low- and moderate-income borrowers. Thus improving their overall financial health and helping Americans get a step closer to closing the racial wealth gap.”