Latest Updates on Student Loan Forgiveness and Mortgage Qualification Amid Policy Changes

The landscape of student loans is shifting once again, leaving many borrowers wondering how upcoming changes will impact their mortgage eligibility and Public Service Loan Forgiveness (PSLF).

With recent announcements about layoffs within the Department of Education and uncertainty surrounding income-driven repayment (IDR) plans, it’s essential to understand your options and take proactive steps.

At LoanSense, we are committed to helping borrowers navigate these challenges. Here’s what you need to know.

Key Updates on Student Loan Policy Changes

Recent headlines have suggested that the Department of Education is being dissolved—however, this is more accurately described as a series of layoffs. A true dissolution of the department would require congressional approval.

Meanwhile, the media has been buzzing about policy changes that could significantly impact borrowers. Reports claim that student loan payments are set to increase dramatically due to changes initiated by the Trump administration. The American Federation of Teachers has even filed a lawsuit in response, arguing that affordable repayment options are being stripped away.

If you’re currently on track for PSLF or looking to qualify for a mortgage, these changes can seem daunting—but there are still viable paths forward.

How to Keep Your Loans on Track for Forgiveness

If you are working toward PSLF, it’s critical to continue making qualifying payments. Unfortunately, being placed into forbearance (especially without a payment) does not count toward your forgiveness timeline.

The good news? There are still options available:

• Enroll in a Standard Repayment Plan: If you need to continue making qualifying payments for PSLF, enrolling in a standard repayment plan is a strategic move while income-driven repayment plans remain unavailable. However, be sure that it is not a Standard Consolidation Plan, as that would reset your forgiveness timeline.

• Extended Fixed Plan for Mortgage Qualification: If you’re trying to buy a home but cannot afford the standard repayment amount, you can temporarily enroll in an extended fixed plan. This ensures that you have a documented monthly payment amount, which mortgage lenders require for qualification.

Important Note: Enrolling in an extended fixed plan may result in interest capitalization, meaning accrued interest is added to your principal balance. While this can increase the total cost of your loan, it may not matter if you’re ultimately working toward forgiveness.

Understanding Interest Capitalization and Its Impact

One concern borrowers frequently ask about is interest capitalization—but what does this actually mean?

Let’s break it down:

• If you have a $30,000 loan balance and $10,000 in accrued interest, your interest is currently based only on the original $30,000.
• When interest capitalizes, that $10,000 gets added to your principal balance, making it $40,000.
• Now, instead of paying interest on $30,000, you’re paying interest on $40,000—causing your overall repayment cost to rise.

For borrowers pursuing loan forgiveness, this is less of a concern because any remaining balance will eventually be wiped out. However, if you are repaying your loans in full, avoiding interest capitalization is advisable.

Mortgage Qualification: What Borrowers Need to Know

If you’re looking to buy a home, having a qualifying student loan payment on record is crucial. Many lenders won’t approve a mortgage application if your loans are in forbearance without a set payment amount.

Best Approach for Mortgage Approval:

• Enroll in standard repayment or extended fixed repayment for a documented payment amount.
• Avoid graduated repayment plans, as the increasing payment amounts can complicate mortgage approval.
• Work with LoanSense to analyze different repayment scenarios and secure the necessary documentation for mortgage closing.

Additional FAQs: Borrower Defense & Consolidation Applications

Many borrowers have also asked whether Borrower Defense and loan consolidation applications are still available. The answer is yes—but with delays.

Due to the Department of Education’s staffing cuts, processing times for Borrower Defense applications are expected to be significantly slower. If you’re considering consolidating your loans, be aware that income-driven repayment plan paperwork is currently unavailable when completing the process online.

Next Steps: Take Action Today

Given the current uncertainty, it’s critical to take control of your student loan situation. Whether you’re working toward PSLF, looking to buy a home, or need help understanding your best repayment options, LoanSense is here to help.

• Get started today: LoanSense
• Have questions? We’re on standby to assist you.

By staying informed and taking proactive steps, you can ensure that your student loans don’t hold you back from achieving your financial goals.