This state wants to pay off $40,000 in student loan debt for first-time homebuyers
The Maine legislature is working on a bill that would forgive eligible first-time homebuyers up to $40,000 in student loan debt.
Democratic Senate President Troy Jackson revealed the details of the Maine Smart Buy program during a public hearing on Feb. 22. He said the program would address the state’s labor shortage by attracting young workers seeking student debt relief.
“We’re counting on younger people to fill labor shortages, keep our traditional industries thriving, and lead our state into the future,” Jackson said. “With this program, we can make it easier for young people to lead a meaningful and fulfilling life here.”
Read on to learn more about student loan forgiveness in Maine and what you can do to manage your debt if you don’t qualify. One strategy is to refinance into a personal student loan at a lower interest rate. You can compare student loan refinance rates on Credible for free without hurting your credit score.
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Maine Smart Buy proposes student debt forgiveness for first-time homebuyers
Last June, Maine Gov. Janet Mills (D) signed a bill directing the Maine State Housing Authority (MaineHousing) and the Finance Authority of Maine (FAME) to develop a program that encourages home ownership by reducing student loan debt reduced. After several meetings in the third quarter of 2021, the agencies recently announced the details of the program.
Maine Smart Buy is modeled after similar existing programs in Illinois and Maryland. To qualify for student loan forgiveness under this proposal, you must:
- Purchase a mortgage through the MaineHousing First Home Loan Program. This first-time homebuyer program has an income limit of up to $131,100 and a maximum home purchase price of $695,000, depending on your household size and the county you are relocating to. You also need a credit score of at least 640 and a backend debt-to-income (DTI) ratio of 45% or less to qualify.
- Have an existing student loan balance of at least $5,000. Homebuyers who are eligible for the Maine Smart Buy program receive an unsecured promissory note that is used to pay off their student loan debt. The promissory note is equal to the amount of student loan debt you have at the time of graduation, up to $40,000.
- Keep the house as your primary residence. You would have to live in the home for at least five years to qualify for the full amount of debt relief. The debt will be forgiven at a rate of 20% per year – but if you sell the house before the five-year deadline, you’re only responsible for paying the balance of the promissory note.
The Maine Smart Buy program is pending approval by the Maine Legislature, which is due in April. If approved, the measure would be funded through a $10 million allocation from the state’s general fund and would run through the next fiscal year ending September 30, 2023.
“Legislators have an opportunity to attract and retain young people by supporting the home ownership increase and student debt relief program,” Senator Jackson said.
If you are not eligible for this student loan forgiveness program, you may be considering alternative debt repayment strategies such as: B. a refinancing. You can learn more about student loan refinance by visiting Credible.
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What to do if you don’t qualify for student loan forgiveness?
Although the Maine Smart Buy program could one day offer student loan relief to some borrowers, it would benefit only a small fraction of the millions of Americans with student loans. Here are some alternative student loan repayment options to consider:
Read more about each strategy in the following sections.
Income dependent repayment
Federal student loan borrowers may be able to limit their monthly payments to 10% to 20% of their disposable income under one of four income-based repayment (IDR) plans:
- Revised pay-as-you-earn (REPAYE) plan
- Pay-As-You-Earn Repayment Plan (PAYE Plan)
- Income dependent repayment plan (IBR plan)
- Income dependent repayment plan (ICR plan)
The amount of your monthly student loan depends, among other things, on your income and the size of your family. After you’ve made payments on your loans for 20 or 25 years, your remaining student debt will be paid off. You can sign up for an IDR plan by logging into your account on the Federal Student Aid (FSA) website.
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Federal student loan forgiveness programs
The Department of Education offers several student debt relief programs to federal borrowers who meet certain eligibility criteria. These include, but are not limited to, public service loan forgiveness (PSLF), closed school layoffs, borrower layoffs for repayment, and total and permanent disability layoffs (TPD).
While the Biden administration has forgiven about $16 billion worth of debt to more than 680,000 borrowers under these programs, President Joe Biden has yet to enact sweeping student loan relief.
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Refinancing student loans
When you refinance a student loan, you take out a new personal loan to pay off your current student debt on more favorable terms. It may be possible to reduce your monthly payments, pay off debt faster, and save money over time by refinancing your student loans at a lower interest rate.
Keep in mind that refinancing your federally held debt into a private student loan would make you ineligible for select protections such as IDR plans, COVID-19 administrative leniency, and federal student loan forgiveness. But if you don’t plan to use these programs — or if you already have private student debt — then it may be worth refinancing at a lower interest rate.
In the table below you can see the current refinancing rates for student loans from private lenders. Then you can use Credible’s student loan refinance calculator to estimate your potential savings and determine if this option is right for your financial situation.
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