Maryland bond program links housing, student loan forgiveness

While federal efforts to forgive student loans generate headlines and lawsuits, some states and municipalities are tying bond-financed mortgage programs to student loan forgiveness to boost home ownership.  

“The Maryland SmartBuy program is designed to help first-time home buyers who have student loan obligations qualify for acquisition financing under the Maryland Mortgage Program,” said Sergei Kuzmenchuk, CFO, Maryland Department of Housing and Community Development.  

“Under this program, a student loan gets paid off at the time the homebuyers settle on their home purchase.”  

Maryland’s program is receiving a $250 million cash infusion courtesy of a two-part residential revenue bond issuance that went to market last month.

The bonds are labeled as social, using criteria from the International Capital Market Association as the basis for the label.  

“The social bonds designation reflects the intended use of the bond proceeds, which is to finance mortgage loans for the purchase of owner-occupied single-family homes by persons of limited income,” said Kuzmenchuk.    

The bonds are backed up by the Government National Mortgage Association the Federal National Mortgage Association, the Federal Home Loan Mortgage Corporation, cash reserves, and other investments.  

Although Maryland claims to be the pioneer in connecting bonds, housing, and student loan forgiveness, other states and municipalities have adopted similar programs. 

The village of Newburgh Heights, Ohio, which is about five miles south of downtown Cleveland offers a 50% reduction in student loan debt up to $50,000 for buyers of homes valued at $50,000 or more that are in the village. 

Kansas is offering up to $15,000 in loan forgiveness in exchange for moving to one of its Rural Opportunity Zones and living there, but buying a home isn’t a requirement. Maine has a similar program. 

Maryland’s program is tied tight to homeownership with the latest, highly rated $250 million dollar deal coming on the heels of a record shattering $400 million residential revenue bond issuance by the CDA that happened last November. 

“This record-setting bond reaffirms our commitment to providing pathways to homeownership, helping to create a brighter future for all Marylanders,” said Gov. Wes Moore  at the time. “By opening the door for more families to create generational wealth, we are fostering a more equitable and competitive economy.”

The program also helps borrowers with down payments and closing cost assistance.  According to CDA the program has issued on average $1 billion in mortgage loans annually over the past four years. 

“Since its inception in 2015, this first-of-its-kind program has served more than 1,340 home buyers with the support of more than $39.4 million from the State of Maryland used to pay off student debt,” said Kuzmenchuk.

In April, President Biden announced plans to cancel $7.4 billion in student debt, part of $153 billion aimed at getting 4.3 million people off a financial hook. The administration’s efforts are under fire from two lawsuits and are being presented as a workaround to Supreme Court decisions that stymied debt relief efforts last year.