FHA student loan payment calculation: the 0.5% rule

What the rule says

Student loans get their own subsection in the Handbook, separate from installment loans. The standard is short: the lender must include all student loans in the borrower's liabilities, regardless of the payment type or status of payments. That one sentence matters because it closes the gaps people used to hope for. A loan in deferment, in forbearance, on an income-driven plan or with no payment due yet is still a liability for FHA purposes.

The calculation

For outstanding student loans, regardless of payment status, the lender uses one of two numbers. If the payment amount reported on the credit report, or the actual documented payment, is above zero, that payment is used. If the monthly payment reported on the credit report is zero, the lender uses 0.5 percent of the outstanding loan balance. It is the same wording in the automated (TOTAL) and manual underwriting sections.

A worked example: you owe $48,000 and the credit report shows a $0 payment because the loan is in deferment. The monthly obligation is $48,000 times 0.005, which is $240. Add that to your car payment, credit cards and the proposed mortgage payment when the lender builds the debt-to-income (DTI) ratio. On $5,000 of gross monthly income, $240 is 4.8 percent of income, and it comes out of the room you have for the house payment.

When the credit report payment is higher or lower

The 0.5 percent figure is a fallback for a zero payment, not a minimum. If your report shows $310 a month on that $48,000 loan, the lender uses $310, even though 0.5 percent would be only $240. Going the other way, suppose the payment used is lower than the one on the credit report, for example because you are on an income-driven plan with a documented lower payment. Then the lender has to obtain written documentation of the actual monthly payment, the payment status, and evidence of the outstanding balance and terms from the creditor or student loan servicer. A borrower's own statement is not enough.

When the loan can be left out

The Handbook lets the lender exclude the payment from the monthly debt calculation where written documentation from the student loan program, creditor or servicer shows the balance has been forgiven, canceled, discharged or otherwise paid in full. A paid-off loan on your credit report that is still showing a balance is a common reason to ask the servicer for a letter before you apply.

Update 18 and the 0.5 percent rule

Update 18 (issued August 12, 2026) keeps the 0.5 percent rule and removes the former COVID-19 suspension exception, so the payment on the credit report, the documented payment, or 0.5 percent of the balance when the reported payment is zero are the only inputs.

Practical steps

Pull your credit report and look at the monthly payment shown for each student loan. If any show $0 and you carry a balance, multiply the balance by 0.005 to see what the lender will assume. If the real payment is lower, ask the servicer for written documentation of the payment, status, balance and terms. Then plug the result into a debt-to-income calculator or the affordability tool, and check your credit-score tier on the minimum score page, since the allowed ratios depend on it.

Sources

• HUD Handbook 4000.1, FHA Single Family Housing Policy Handbook, Update 18 PDF: Underwriting the Borrower Using the TOTAL Mortgage Scorecard, Student Loans (TOTAL), Handbook p. 217; Manual Underwriting of the Borrower, Student Loans (Manual), pp. 299-300. Read November 2, 2026.
• HUD, Single Family Housing Policy Handbook 4000.1 information page. Read November 2, 2026.

Text read: HUD Handbook 4000.1, FHA Single Family Housing Policy Handbook, the clean Update 18 PDF that HUD links from its Handbook 4000.1 information page (HUD lists it as the August 12, 2026 update). Confirm current requirements with an FHA-approved lender, who may apply stricter standards of its own. This page paraphrases the Handbook and does not replace it. Page numbers cited are the Handbook's own and may be approximate; use the section headings to locate the text.