A new federal student loan repayment plan known as the Saving on a Valuable Education (SAVE) plan has the potential to make homeownership more attainable for Californians burdened by student debt. The plan, introduced by the Biden administration, promises to significantly reduce borrowers’ monthly payments, with some even facing a $0 bill.

According to experts, one of the key advantages of the SAVE plan is its potential to lower borrowers’ debt-to-income ratios, a critical factor in mortgage underwriting. By reducing monthly student loan payments, the plan effectively frees up more income for prospective homebuyers, making it easier for them to qualify for mortgages.

Under the SAVE plan, borrowers may see their monthly payments slashed by as much as half compared to previous repayment plans. For instance, someone earning $40,000 annually could see their payment drop from approximately $151 to just $30. Similarly, those earning $90,000 a year may see their payments decrease from $568 to $238.

Moreover, the plan increases the income exempted from payment calculations, providing further relief to borrowers. Additionally, first-time homebuyers who are student loan borrowers may find assistance through grants or down-payment assistance programs offered by state or municipal agencies.

Despite its potential benefits, there is a catch: some mortgage lenders may not consider a $0 monthly student loan payment in their underwriting process, potentially hindering borrowers’ ability to secure mortgages. Advocates, such as the Center for Responsible Lending, are pushing for lenders to recognize the lower payment obligations under the SAVE plan to ensure fair access to homeownership for low-income Americans.

Overall, the SAVE plan offers hope for Californians struggling with student debt, providing a pathway to both financial stability and homeownership in the Golden State.