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Starting July 1, federal student loan borrowers must choose between two repayment plans as the SAVE income-driven repayment plan goes away.
This decision can impact future mortgage borrowing, which matters to new grads who also want to become homeowners.
Reviewing your repayment plan now, before July 1, gives you the clearest possible picture of your buying power.
...in as little as 3 minutes — no credit impact
What changes on July 1, 2026
The One Big Beautiful Bill Act (OBBBA) restructures federal student loan repayment in three significant ways.
The SAVE plan is eliminated. SAVE, which had been blocked by federal courts since 2024, is being formally wound down. Borrowers who were enrolled in SAVE will receive notices from their servicer beginning July 1 with instructions to select a new plan. Borrowers who take no action will be automatically enrolled in either the existing Standard Repayment Plan or the new Tiered Standard Plan.
Two new repayment options become available. The Repayment Assistance Plan (RAP) replaces all existing income-driven repayment (IDR) plans for new borrowers. RAP sets payments at 1%–10% of a borrower's income, with a $10 minimum monthly payment and loan forgiveness after 30 years of qualifying payments. A restructured Tiered Standard Plan offers fixed payments over timelines of 10 to 25 years based on original loan balance.
The existing IBR plan survives, but only for a while. Borrowers who were in IBR before July 1, 2026, can remain in IBR through at least July 2028. After that, IBR borrowers who have not transitioned will be automatically moved into RAP.
And if you took out any federal loan on or after July 1, 2026, (even if you have older loans) all of your federal loans must follow the new plan rules.
How your repayment plan affects your mortgage qualification
When you apply for a mortgage, lenders calculate your debt-to-income ratio to assess how much of your monthly gross income is already committed to debt payments.
Your student loan payment is part of that calculation. Paying more each month on student loans leaves less room in your DTI for a mortgage payment.
Most conventional loans look for a back-end DTI at or below 45%, though some automated underwriting systems allow higher ratios depending on the overall strength of the file. FHA loans can accommodate higher DTIs in some cases, with compensating factors. Understanding how to qualify for a mortgage starts with knowing exactly how each of your debts — including student loans — is counted.
One important lender rule applies to deferred loans and IDR plans with $0 payments: if your credit report shows a $0 payment, most lenders will still substitute 0.5% of your total outstanding loan balance as the assumed monthly payment. A borrower with $60,000 in student loans and a $0 IBR payment would have $300 per month added to their debt load for DTI purposes, even if they are not actually paying that amount. Knowing this rule matters before you choose a repayment plan. Improving your debt-to-income ratio before applying can meaningfully expand your options.
RAP — what it means for your DTI
The new Repayment Assistance Plan sets monthly payments at 1%–10% of your adjusted gross income, with a $10 floor. For a borrower earning $65,000 per year with $60,000 in loans, a RAP payment might land between $54 and $541 per month depending on where their income falls in the plan's tiers and how many dependents they have.
For a borrower with a modest income, RAP may produce a significantly lower monthly payment than the 0.5% lender default ($300 per month in this example). This would directly lower their DTI. For a higher-income borrower, RAP's income-scaling may result in a payment comparable to or higher than the standard plan.
The key question for lenders: will they use your actual documented RAP payment, or fall back to 0.5% of your balance? For conventional loans backed by Fannie Mae, lenders can use your actual IDR payment as reported on your credit report, even if it is $0, as long as that payment is documented. For FHA loans, lenders must use 0.5% of the balance or the documented payment, whichever is greater. In a $0 scenario, this defaults to 0.5%. This difference can amount to hundreds of dollars per month in phantom debt on your application.
Standard plan — what it means for your DTI
The new Tiered Standard Plan sets fixed monthly payments based on your original loan balance over a term of 10 to 25 years. For a borrower with $60,000 in federal loans at a standard repayment rate, the monthly payment would be higher than most RAP scenarios, often in the $600 to $800 range depending on interest rate and term.
For a borrower with a high income and strong overall file, the standard plan's fixed payment may actually improve their application clarity with lenders, since the payment is stable and predictable. But for buyers with tight DTIs, the higher fixed payment can reduce borrowing power meaningfully.
IBR — what it means for your DTI
IBR remains available to borrowers who took out loans before July 1, 2026, and will survive until July 2028. IBR payments are income-based, and for borrowers with low-to-moderate incomes relative to their debt, IBR can produce a lower monthly payment than the standard plan. If your actual IBR payment is documented on your credit report, conventional loan lenders can use that figure for DTI, including a $0 payment.
IBR borrowers planning to buy a home before 2028 have additional flexibility. Borrowers planning to buy after 2028 should begin considering a transition to RAP before the automatic switch occurs, since an unplanned auto-enrollment could temporarily affect their documented payment.
Three scenarios: How the plan choice plays out for a homebuyer
The right repayment plan for mortgage purposes depends on your income, loan balance, loan type, and homebuying timeline. Here are three illustrative scenarios.
| Scenario | Borrower profile | Best plan for DTI | Key consideration |
|---|---|---|---|
| Lower-income borrower | $50K income, $55K loans | RAP (est. ~$45–$270/mo) | RAP payment likely below 0.5% lender default ($275/mo); document the payment carefully |
| Higher-income borrower | $110K income, $55K loans | Standard or IBR | RAP scales with income; standard or IBR may produce similar or lower payment at high income |
| Existing IBR borrower buying before 2028 | $75K income, $45K loans, $0 IBR payment | Stay in IBR | Lender uses actual $0 IBR payment on conventional; avoid unnecessary plan changes before closing |
Example is for illustrative purposes only. Rates, payments, and total interest will vary based on credit profile, loan terms, and market conditions.
...in as little as 3 minutes — no credit impact
What to do before July 1 if you're planning to buy
With the deadline four weeks away, here are the concrete steps that matter for prospective homebuyers:
Know your current payment and plan. Log into StudentAid.gov to confirm which plan you are currently on and what your required monthly payment is. If you are on SAVE, you will need to select a new plan — do not wait for automatic enrollment.
Run the 0.5% comparison. Multiply your total outstanding federal loan balance by 0.5%. That is the monthly payment a lender will attribute to you if your credit report shows a $0 or deferred payment. If your actual RAP or IBR payment is lower, documenting it clearly with your servicer and providing that documentation to your lender can improve your DTI.
Talk to your lender about loan type. Conventional and FHA loans treat student loan payments differently. If you are currently showing a $0 IDR payment, a conventional mortgage may treat that payment more favorably than an FHA loan, which defaults to 0.5% regardless. Knowing what documents are needed for mortgage pre-approval — including your repayment documentation — means fewer surprises.
Do not refinance federal loans to private lenders without advice. If refinancing lowers your monthly payment, it improves your DTI. But refinancing federal loans into private loans permanently removes your access to income-driven repayment, federal forbearance, and any remaining forgiveness eligibility. If homebuying is on your near-term horizon, talk to a lender first before converting federal loans to private. The DTI gain may not be worth the loss of flexibility.
Get pre-approved before the deadline if possible. A pre-approval gives you a documented picture of your qualification at your current repayment terms. If you are switching plans, getting pre-approved before the July 1 transition locks in your current payment documentation. With an entirely online process, getting pre-approved takes a few minutes and has no credit impact.
For first-time homebuyers navigating student debt alongside a purchase, the minimum credit score for a mortgage and FHA loan down payment requirements are also worth reviewing in parallel — DTI is one piece of a larger qualification picture.
Frequently asked questions
I'm on the SAVE plan right now and I want to buy a house in the next year. Should I switch plans before July 1, or will it hurt my DTI?
You will need to switch plans regardless, since SAVE is being eliminated. The more important question is which plan to move to. If your income is relatively low compared to your loan balance, RAP may produce a lower documented payment than the 0.5% lender default, which could help your DTI. If your income is higher, compare the RAP payment estimate against the standard plan before deciding. Talk to a lender before you switch, since a plan change right before a loan application can temporarily affect how your payment is documented.
How does my student loan repayment plan actually affect whether I can qualify for a mortgage?
Lenders include your monthly student loan payment in your debt-to-income ratio calculation. If your required payment is lower, your DTI is lower, and a lower DTI typically means you can qualify for a larger loan or a more favorable rate. The plan you are on determines your required monthly payment, which is why the choice matters beyond just your personal budget.
I have $60,000 in federal student loans and my income is $65,000 a year. Will the new RAP plan give me a lower monthly payment than IBR for mortgage purposes?
It depends on how many dependents you have and where in RAP's 1%–10% income scaling your payment lands. At $65,000 income with no dependents, RAP could produce a monthly payment of roughly $54–$541 depending on the specific tier. IBR payments are also income-based and may produce a similar result. The key is to get a documented payment figure for both plans and compare them against the 0.5% lender fallback ($300/month on a $60K balance), whichever produces the lowest documented payment is most advantageous for your DTI.
If I switch to the Repayment Assistance Plan before buying a home, will lenders use my actual RAP payment or 0.5% of my balance for DTI?
For conventional loans, lenders can use your actual documented RAP payment, even if it is low or $0 as long as it is reported on your credit report. For FHA loans, lenders use 0.5% of the loan balance or the documented payment, whichever is greater. If your RAP payment is below 0.5% of your balance, an FHA lender will use the 0.5% figure regardless. This is one reason some borrowers with student debt are better served by a conventional mortgage than an FHA loan.
What happens to my mortgage application if I'm on an income-driven repayment plan with a $0 monthly payment?
Most lenders will add 0.5% of your total outstanding loan balance to your monthly debt obligations for DTI purposes. On $60,000 in loans, that is $300 per month added to your debt load, even if you are not paying it. For FHA loans, this is fixed regardless of documentation. For conventional loans, if your credit report documents a $0 payment from a valid IDR plan, some lenders will use $0. Confirming with your lender how they will handle your specific payment documentation is the clearest path to understanding your actual buying power. A how to qualify for a home loan first-time buyer guide can also help you map out the full picture.
Is it better to refinance my student loans to a private lender to lower my payment before applying for a mortgage?
Possibly, but proceed carefully. If refinancing lowers your required monthly payment, it may improve your DTI. The tradeoff is that refinancing federal loans into a private loan permanently removes your access to income-driven repayment, federal forbearance, and potential forgiveness. If your income changes or you face a hardship after closing, you lose the safety net. Talk to a lender and review your full financial picture before making this move. Some lenders also require 12 months of on-time payments on a newly refinanced loan before they will count it at its new payment level.
My student loans are in deferment right now. How will that affect my DTI when I apply for a mortgage?
If your loans are in deferment, lenders cannot use the deferred payment of $0. Instead, most will apply the 0.5% lender default, which is 0.5% of your total outstanding balance. If your balance is $80,000, that adds $400 per month to your DTI calculation. Moving loans out of deferment and into a documented low-payment plan before applying may help, but only if the resulting payment is actually lower than the 0.5% default. Your lender can model both scenarios.
Your repayment plan is a homebuying tool
The July 1 deadline is real, but it does not have to be stressful. The core insight is simple: the plan you choose affects how lenders see your monthly obligations, and that affects how much home you can qualify for. A few minutes of research now, before automatic enrollment kicks in, can give you meaningful control over your buying power.
The clearest next step is to see your actual numbers. An online pre-approval takes a few minutes, does not affect your credit score, and gives you a documented baseline before any plan changes take effect.
...in as little as 3 minutes — no credit impact