Does Debt to Income Include Student Loans? (2026 Rules)

Program-by-program treatment of student loans in DTI

The 2023 updates from Fannie Mae and Freddie Mac materially relaxed student loan DTI rules, especially for IDR borrowers. Here is the current state.

The key 2023 change was Fannie Mae and Freddie Mac allowing $0 IDR payments to be used in DTI. Before 2023, the GSEs required a 1 percent calculation regardless of actual IDR amount, which excluded many IDR borrowers from mortgage qualification. The current rule effectively rewards IDR enrollment for qualification purposes.

The full Fannie Mae rule is in Selling Guide B3-6-05. Freddie Mac’s rule is in Single-Family Seller/Servicer Guide section 5401.2(b). FHA’s rule is in HUD Handbook 4000.1 Section II.A.5.a.iv.

Income-driven repayment plan basics

Federal income-driven repayment plans set monthly payments based on income and family size. The plans available as of 2026 (post-litigation):

• SAVE (Saving on a Valuable Education): introduced 2023, partially blocked by litigation 2024 to 2025. Calculates payment as roughly 5 to 10 percent of discretionary income, with $0 payments for borrowers below the protected income threshold.
• PAYE (Pay As You Earn): 10 percent of discretionary income, capped at standard 10-year payment.
• IBR (Income-Based Repayment): 10 or 15 percent of discretionary income depending on loan date.
• ICR (Income-Contingent Repayment): lesser of 20 percent of discretionary income or fixed amount over 12 years.

All four plans can produce $0 monthly payments for low-income borrowers. The lender pulls the actual current IDR payment from the credit report or from studentaid.gov servicer documentation.

Why the IDR treatment matters for mortgage qualification

A typical scenario: a teacher with $58,000/year income and $85,000 in federal student loans. On standard 10-year repayment, the monthly payment would be roughly $900. On SAVE IDR, the actual payment might be $185/month.

Old rule (pre-2023): the GSEs required 1 percent of balance = $850/month. This made the borrower’s DTI:

• ($1,400 PITI + $850 student + $200 cards) / $4,833 = $2,450 / $4,833 = 50.7 percent.
• Over conventional 45 percent typical cap. Likely denied.

Current rule (post-2023): the actual $185 IDR payment is used:

• ($1,400 + $185 + $200) / $4,833 = $1,785 / $4,833 = 36.9 percent.
• Well within conventional caps. Approved with room.

The 2023 rule change opened mortgage qualification to millions of IDR borrowers who were previously excluded by the 1 percent calculation.

Worked scenario: $48,000 federal student loan in three repayment scenarios

A borrower with $48,000 in federal student loans (Direct Subsidized and Unsubsidized), $75,000/year income ($6,250/month gross), applying for a $325,000 mortgage with 10 percent down at 7 percent rate. Proposed PITI $2,380.

Scenario A: Standard 10-year repayment plan. Monthly payment $508. Back-end DTI ignoring other debt:

• Fannie/Freddie: actual $508 used. DTI = ($2,380 + $508) / $6,250 = 46.2 percent.
• FHA: actual $508 used (because it exceeds 0.5 percent of balance = $240). DTI = 46.2 percent.
• VA: $508. DTI = 46.2 percent.
• USDA: $508. DTI = 46.2 percent.

Scenario B: Income-Based Repayment (IBR), $145/month actual payment. Back-end DTI:

• Fannie/Freddie (post-2023 rule): $145 used. DTI = ($2,380 + $145) / $6,250 = 40.4 percent.
• FHA: 0.5 percent of $48,000 = $240. Lender uses greater of actual ($145) or 0.5 percent ($240) = $240. DTI = ($2,380 + $240) / $6,250 = 41.9 percent.
• VA: $145 if documented. DTI = 40.4 percent.
• USDA: $145 used. DTI = 40.4 percent.

Scenario C: Deferred during graduate school. Back-end DTI:

• Fannie/Freddie: 1 percent of $48,000 = $480 OR fully amortizing payment if documented. Assume $480. DTI = ($2,380 + $480) / $6,250 = 45.8 percent.
• FHA: 0.5 percent = $240. DTI = ($2,380 + $240) / $6,250 = 41.9 percent.
• VA: 5 percent of balance / 12 = $200 if not documented. DTI = ($2,380 + $200) / $6,250 = 41.3 percent.
• USDA: 1 percent of balance = $480. DTI = ($2,380 + $480) / $6,250 = 45.8 percent.

Decision matrix:

• For Fannie/Freddie conventional, switching to IDR saves 5.8 percentage points of DTI (from 46.2 percent to 40.4 percent). Crosses the 45 percent threshold. Eliminates the 40+ percent LLPA tier.
• For FHA, switching to IDR saves 4.3 percentage points (46.2 to 41.9 percent). FHA’s 0.5 percent floor limits the benefit.
• For VA, switching to IDR helps similarly to conventional if documented.
• For USDA, switching to IDR saves 5.8 points but you must also pass the 41 percent strict cap.

The trade-off: IDR payment lower but loan balance grows

IDR plans typically result in negative amortization for years (interest accrues faster than the payment covers principal). The loan balance grows.

A $48,000 loan on standard 10-year repayment is paid off after $61,000 total over 10 years (about $13,000 of interest). The same $48,000 on IBR over 25 years can accumulate to $80,000+ before forgiveness in year 25 of payments. Total paid over the 25-year IBR period might be $43,500 in payments plus a tax bomb on the forgiveness amount (currently $32,500 forgiven, taxable in non-PSLF cases through 2025; the American Rescue Plan exempts IDR forgiveness through 2025).

For mortgage qualification purposes, IDR is usually a win. For total student loan cost, IDR is usually a loss unless you qualify for PSLF or stay below the IDR threshold long enough for forgiveness.

The 10-or-fewer-remaining-payments exclusion does NOT apply

Fannie Mae and Freddie Mac allow exclusion of installment debt with 10 or fewer monthly payments remaining from DTI calculation. This is most often used for short-term auto loans and personal loans. Student loans typically have 20+ years remaining at the mortgage application stage. The exclusion does not help except in very unusual end-of-loan scenarios.

Tactical moves to optimize student loan DTI before mortgage application

Move 1: Enroll in IDR if eligible. A $0 to $200/month IDR payment counts dramatically lower than 1 percent of balance under Fannie/Freddie. Apply through your servicer at studentaid.gov. Recertify income annually.

Move 2: Document the actual scheduled payment. Most lenders accept a servicer statement showing the current payment. If the credit report shows incorrect or outdated payment information, request a corrected payment certification.

Move 3: Avoid forbearance unless necessary. Forbearance for non-payment reasons (administrative, in-school, military) defaults to the 1 percent calculation on most programs. Avoid unless required.

Move 4: Verify default status is cured. If any federal student loan is in default, no mortgage program will close. Cure through rehabilitation (9 months of agreed payments) or consolidation. CAIVRS (Credit Alert Verification Reporting System) is checked by FHA/VA/USDA for federal-debt default; an active CAIVRS hit blocks approval.

Move 5: Time the application around recertification. IDR payments recertify annually. If your income increased significantly, file the application before the new IDR payment is reported on the credit report. If your income decreased, recertify and update before applying.

Programs to pursue alongside the mortgage

Two federal programs interact materially with student loan DTI math.

Public Service Loan Forgiveness (PSLF): 120 qualifying payments while employed full-time by a government or eligible non-profit employer leads to tax-free forgiveness of remaining federal direct loan balance under Higher Education Act § 455(m). PSLF eligibility is best documented via the PSLF Employment Certification Form at studentaid.gov/manage-loans/forgiveness-cancellation/public-service.

Teacher Loan Forgiveness: up to $17,500 forgiveness for teachers in low-income schools after 5 consecutive years of qualifying service per studentaid.gov/manage-loans/forgiveness-cancellation/teacher.

Pursuing PSLF or Teacher Forgiveness can make IDR the optimal repayment strategy even from a total-cost perspective. The mortgage qualification benefit is a side effect.

When paying off student loans before mortgage makes sense

The math usually does not pencil to pay off federal student loans early because:

1. Federal loan interest rates are usually below the prevailing mortgage rate (e.g. 4 to 7 percent vs 7 to 8 percent mortgage). Paying off a 5 percent loan with cash that could otherwise reduce a 7 percent loan is value-destructive.
2. Federal loans have generous income-driven repayment, forgiveness, and discharge options that private loans and mortgages do not.
3. The cash used to pay off student loans reduces down payment, increasing LTV and potentially adding PMI cost.

Exception: private student loans at 8+ percent APR with no IDR or forgiveness options. Those can be aggressively paid off before mortgage in the same way as a high-rate auto loan.

Authoritative sources

• Fannie Mae Selling Guide B3-6 Liability Assessment
• Freddie Mac Single-Family Seller/Servicer Guide section 5401
• HUD, FHA Handbook 4000.1 Section II.A.5
• VA Lenders Handbook M26-7
• USDA Single Family Housing Guaranteed Loan Program
• Federal Student Aid, IDR Plans
• Federal Student Aid, PSLF
• CFPB, Student loan information

Sibling questions

• How is debt to income ratio calculated?
• Does debt to income include rent?
• Does debt to income ratio affect mortgage rate?
• What DTI ratio is too high for mortgage?
• How to lower your debt to income ratio?
• Should I pay off debt before buying a house?

Related tools

• Credit card payoff calculator
• Debt management plan calculator
• Balance transfer calculator

Frequently asked questions

Do student loans count in debt-to-income ratio?

Yes. Student loans (federal and private, in repayment or deferred) count in back-end DTI for mortgage qualification. The exact payment amount used depends on the loan status (active repayment, IDR, deferred, in default) and the loan program. As of 2023 guideline updates, Fannie Mae and Freddie Mac use the actual income-driven repayment amount shown on the credit report or studentaid.gov, even if it is $0. FHA uses 0.5 percent of the loan balance if no payment is reported.

How do mortgage lenders treat income-driven repayment plans?

For Fannie Mae and Freddie Mac (per 2023 guideline updates), the actual IDR payment amount is used in DTI calculation, including $0 payments if that is the correct IDR amount. For FHA, per HUD Handbook 4000.1, lenders typically use the greater of 0.5 percent of the outstanding balance OR the actual payment amount. VA allows the actual IDR payment. USDA uses 1 percent of balance if payment is not reported on the credit report.

What if my student loans are in deferment or forbearance?

Each program treats deferment differently. Fannie Mae and Freddie Mac use 1 percent of the outstanding balance OR a fully amortizing payment based on the documented terms. FHA uses 0.5 percent of balance. VA uses the deferred payment amount or 5 percent of balance divided by 12 if no payment is documented. USDA uses 1 percent of balance. Documentation showing the actual scheduled payment can override the assumed-percentage method on most programs.

Does the SAVE plan $0 IDR payment count as $0 in DTI?

For Fannie Mae and Freddie Mac, yes; the actual $0 IDR payment is used in DTI. For FHA, no; 0.5 percent of the balance is the floor regardless of IDR amount. For VA, the actual payment can be used if documented. USDA generally requires 1 percent of balance. The SAVE plan litigation in 2024 to 2025 disrupted borrower payments; lenders may require additional documentation of current status during this transition.

Should I pay off student loans before applying for a mortgage?

Only if the DTI impact justifies the cash deployment. A $30,000 federal loan at $312/month on standard 10-year repayment counts as $312/month in DTI. Paying it off frees roughly $46,800 of mortgage borrowing capacity at 7 percent rates. But $30,000 of cash used to pay loans is $30,000 less for down payment. Usually better to refinance to IDR or extended repayment to reduce the monthly payment without depleting cash. Federal forgiveness programs (PSLF, IDR forgiveness) can also affect the calculus.