Circular 26-17-2

Veterans Benefits Administration Circular 26-17-02

Department of Veterans Affairs January 23, 2017

Washington, D.C. 20420

Clarification and New Policy for Student Loan Debts and Obligations

1. Purpose. The purpose of this Circular is to clarify and explain new policy regarding

student loans for the underwriting of Department of Veterans Affairs (VA) guaranteed home

loans.

2. Background. The policy in the Lender’s Handbook- VA Pamphlet 26-7, chapter 4, section 5,

paragraph G will now be titled Student Loans. The clarification will apply to deferred student

loans and the new policy will provide guidance for student loans in repayment or, to begin

repayment within 12 months of a VA loan closing. Student loans under certain repayment plan

types are described at studentaid.ed.gov. This policy applies to all student loan repayment types.

3. How to Calculate a Student Loan Monthly Payment.

a. If the Veteran or other borrower provides written evidence that the student loan debt will be

deferred at least 12 months beyond the date of closing, a monthly payment does not need to be

considered.

b. If a student loan is in repayment or scheduled to begin within 12 months from the date of

VA loan closing, the lender must consider the anticipated monthly obligation in the loan

analysis and utilize the payment established in paragraph (1) or (2) below. Calculate each loan

at a rate of 5 percent of the outstanding balance divided by 12 months (example: $25,000

student loan balance x 5% = $1,250 divided by 12 months = $104.17 per month is the monthly

payment for debt ratio purposes).

(1) The lender must use the payment(s) reported on the credit report for each student loan(s) if

the reported payment is greater than the threshold payment calculation above.

(2) If the payment reported on the credit report is less than the threshold payment calculation

above, the loan file must contain a statement from the student loan servicer that reflects the

actual loan terms and payment information for each student loan(s). The statement(s) must be

dated within 60 days of VA loan closing and maybe an electronic copy from the student loan

servicer’s website or a printed statement provided by the student loan servicer. It is the

lender’s discretion as to whether the credit report should be supplemented with this information.

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