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How One Woman Got A Mortgage Despite Having Over $100,000 In Student Loan Debt

4-minute read

April 07, 2021


Knowledge is Power When It Comes To Student Loans & Getting A Mortgage

When Cherelle Phelps was growing up in Winston Salem, North Carolina, she always planned to go to college. “It was the ticket to the door of most career paths, and any that I was interested in,” says Phelps. In 2008, her dream became a reality. She graduated from North Carolina A&T University with the hopes of becoming a broadcaster.

But 2008 was not an easy year to find a job, due to the great recession. So, Phelps decided it was a good time to go back to school and pursue a master’s degree. It was during this time that Phelps realized her true calling: teaching. 

“The feeling that I got once I got in that classroom was that, I’m walking in my purpose,” she says.

The Cost Of ‘Walking In One’s Purpose’

Financial experts are always quick to have people distinguish between good debt and bad debt. Bad debt generally refers to credit card debt, while good debt refers to things that will pay off down the road, like mortgages and student loans.

For Black student debt loan holders, however, there is a thin, and very long, line between good and bad. According to the Institute on Assets and Social Policy and Brandeis University, Blacks owe 95% of their original debt 20 years after graduating, compared to just 6% of white loan holders.

“I followed all the rules. I did everything the right way, and I’m paying for it now,” says Phelps.” My student loan debt is north of $100,000.”

“Education is that gift that keeps on giving,” says John Hope Bryant, chairman and CEO of Operation HOPE, the world’s largest financial education and empowerment organization.

“If you have to go into debt for anything, you have to think of it as investing in yourself and becoming smarter so that you can make more and build more,” he adds. “You don't want to feel bad about it, but you do need to manage it.”

Managing ‘It’ And Realizing A Dream of Becoming A Homeowner

In addition to going to college, Phelps always dreamed of owning a home, a dream she thought would be impossible with her student loan debt.

Although she says she often buried her head in the sand because her debt load was so overwhelming, she realized that in order to build wealth through homeownership, she was going to have to take a proactive approach in her financial life.

"Don't be afraid,” says Marcia Griffin, founder and president of HomeFree-USA, an organization that mentors would-be home buyers through their financial challenges in order to prepare them to be approved for a mortgage. The nonprofit currently serves 4.5 million people.

"A lot of folks, particularly Black folks, are thinking, I have bad credit, I have too much student loan debt, I'll never get a mortgage," she says. "Look, we all have had credit issues. We just need to work it out and get some direction."

Cherelle believed she was "working It out" by putting her federal loans on an income-based repayment plan. The plans set your monthly student loan payment at an amount that is intended to be affordable based on your income and family size.

Income-based repayment plans are one of many options Lynnette-Khalfani-Cox, The Money Coach, says more borrowers should consider.

“I think probably the least-understood issue when it comes to student loans is that there really is a payment plan for everybody,” says Khalfani-Cox.

“And when I say everybody, I mean the person who is dead broke, who's unemployed or who has pretty much no income coming in. Your schedule repayment can literally be 0 or 5 dollars,” she adds.

Many borrowers also don’t realize that with income-based repayments there is an end game. The maximum repayment period is 25 years; after that, all remaining debt is forgiven.

Cherelle thought her low monthly income-based repayments would help her qualify for a mortgage for a modest home she wanted to purchase, particularly because she had good credit. To her surprise, her bank initially said no.

The Truth Will Set You Free!

Cherelle could not accept her bank’s rejection because she knew something wasn’t adding up. She had a good relationship with her bank – something that proved to be critical, and she reached out to the branch president.

It was indeed her student loan debt that kept her from qualifying, but through her persistence, she realized that the bank was missing something.

“They were looking at my total debt load without realizing I was on income-based repayment,” says Phelps. “I had to show them and prove it to them. I went into his office and said I know that my student loan debt is reporting that I have this much and I know it looks overwhelming, but I am on these plans.

“Slowly but surely, that amount that they were able to qualify me for went up, and the president of the local bank signed off. It was no easy feat.”

Not easy, but certainly worthwhile.

While everyone's circumstances are different, it's important to be able to communicate with your lender and be prepared with any documentation that can help the lender see the full picture.

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