Federal legislation to relieve the heavy economic impact of student loan debt has been gridlocked, and recent elections may not help much. Stepping into this breach, states are having to come up with their own proposals. Outgoing Ohio state senator, Joe Schiavoni, has introduced a bill that would eliminate student loan debt for first-time homebuyers.
In Schiavoni’s bill, homebuyers are eligible to have student loan debt equal to “20 percent of their home’s cost at closing” forgiven. As long as they make their mortgage payments on time, they don’t have to make their student loan payments. Then, after five years, the program forgives the homebuyer’s student loan debt. An exception is that buyers are responsible for student debt in excess of the 20 percent calculation.
“Too many Ohioans who are saddled with student loan debt aren’t buying homes and that is hurting their future financial prospects, contributing to brain drain and stifling our housing market,” said Joe Schiavoni. The plan will incentivize new graduates to stay here in Ohio and will stabilize neighborhoods at the same time.”
Ohio Borrowers Need Help
The bill is a response to Ohio’s ranking as one of the worst in total student loan debt. The average student in Ohio owes $30,239,and more than two-thirds of students hold student loan debt. Both of these are “bottom 10” rankings. Worse, the total amount of student loan debt in Ohio is more than 50 percent of total annual income. Financial planners consider 10 percent to be a manageable amount of student loan debt.
Unfortunately, those statistics are worsened by Ohio’s middle of the pack status for student jobs and paid internships. Further, the unemployment rate for 25- to 34-year-olds is nearly 6 percent, well above the national average and among the worst in the country. Perhaps more troubling for Ohio, the underemployment rate is about 10 percent. So, even if people are finding jobs, they’re part-time, and borrowers aren’t earning enough to pay off student loans plus any additional household expenses.
The legislation directs state agencies to work with lenders to provide mortgages that establish student loan debt elimination. This program will work in tandem with other first-time homebuyer programs.
Maryland’s SmartBuy Program
Schiavoni based his bill on a Maryland program, SmartBuy. For The program has been a hit with buyers. It allows participants to purchase eligible homes in the state while eliminating up to $30,000 in student debt. Currently, SmartBuy requires buyers to purchase certain homes designated by the Maryland Department of Housing and Community Development.
Federal failure to address student loan debt has motivated states to come up with help for struggling borrowers. For those in Maryland, help has already arrived. There is now some hope in Ohio that at least one outgoing state senator can lend a helping hand.