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If my student loans are on an income-based repayment plan, how does that affect my debt-to-income ratio? Is it reported at the current amount I'm paying, or what I would have been paying if it weren't for the IBR?

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    Not an answer, because I'm speculating, but wouldn't the principal owed be the debt, rather than the payment amount? In that case, debt-to-income would be unaffected by the payment amount. On the other hand, if you try to get a mortgage, they'll probably want to figure how much you can borrow based on total percentage of income going to debt service. – Rick Goldstein Mar 7 '13 at 5:15
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Short answer

Your student loan payments are reported at the amount you currently pay. Specifically, your payments affect your back-end debt-to-income ratio, which is the ratio of what you pay to service all of your debts to your gross income. The amount you would be paying were you not on an IBR isn't relevant.

Long answer

Your debt-to-income ratio is the monthly ratio of what you pay to service your debts to your gross income. Specifically, there are two kinds of debt-to-income ratios, and they differ based on which debt payments they incorporate.

  1. Housing ratio/front-end ratio - The percentage of your income that goes towards housing costs. If you're a renter, these housing costs include your rent. If you're a homeowner, these housing costs include mortgage payments, both principal and interest, taxes, insurance, etc. Utilities are not included.

  2. Total ratio/back-end ratio - The percentage of your income that goes towards paying the cost of all your debts. This ratio includes the housing costs included in the front-end ratio, as well as all recurring debt payments, e.g. car loans, student loans, credit cards, housing costs of other properties you own, etc.

The student loan payments you currently make affect the back-end debt-to-income ratio. You'll probably need to provide documentation from your student loan provider that shows you're on an income-based repayment plan; otherwise, your payments might look lower than another loan provider might expect (since IBR plans usually have lower payments because you need to show a certain level of financial hardship to qualify).


The situation is more complicated if you have deferred student loans and you're applying for a home loan. Depending on the loan program you're applying for, some programs will use a percentage of the outstanding debt as a projected student loan payment, while others will ignore your loans if they're deferred for more than the first year of the mortgage. Conventional loan providers may use any of these methods to estimate your future monthly payments.

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