Maryland has started a new plan that helps encourage students to purchase a home and it helps them pay back their student loans at the same time. Sounds pretty awesome, right? In reality, it does sound great, but is it a plan that will actually work or is it a plan that is just too good to be true?
The program is called SmartBuy and we will discuss it in detail below to help you better understand what it is and whether or not it will benefit you or hinder you when it comes to student loan debt.
The SmartBuy Program and What to Know About It
The Maryland Department of Housing and Community Development has many different homes that are available for sale. These homes have not been purchased and are intended to be used in the SmartBuy program. If a student who has student loan debt purchases a home, then Maryland taxpayers will refund up to a portion of the home’s purchase price. The amount refunded is up to 15 percent of the home’s purchase price and the money is applied directly to the student’s student loan debt.
Students who participate in the SmartBuy program must live in the home for a minimum of five years. This means that they cannot sell it prior to this time.
Cost of Homes in the Program
Maryland’s home prices rise and fall as the market changes, but the website currently shows 17 homes listed and the prices range from $136,000 up to about $300,000. The average purchase price of a home falls somewhere in the range of $200,000 to $250,000. If a student were to purchase a home in this range, they would be eligible to receive up to $30,000 in student loan forgiveness.
The higher the cost of the home, the more money the student would receive in student loan forgiveness. Of course, it is important that you only apply for a home that you know you can afford. It would not be cost effective to purchase an expensive home that you cannot afford simply to receive student loan forgiveness.
The Program in More Detail
The program has a budget of $10 million dollars that has been allocated to it. The state has funds available to give to the program, without causing other programs to be sacrificed. Maryland is known to have the seventh highest tax burden throughout the entire country and all neighboring states.
Unfortunately, the deal sounds much better than it actually is, and students who have moved to Maryland to receive the deal may find themselves a bit upset after signing up.
While the deal may not be as awesome as initially thought, the US government does have many different programs in place that allow people to purchase homes quite easily. Many of the plans include interest deductions, programs through the Federal Housing Administration, Freddie Mac, Fannie Mae, and other government-sponsored programs. First-time homebuyers even receive a low or no down payment when they purchase their very first home.
The problem with Maryland’s new home program is that it is redundant and is not needed since there are many other programs in place already. In fact, it is believed that this program is only in place to distort the picture of the true economy.
One of the biggest problems with home ownership and the Maryland program is that many young people are not ready to purchase a home because a home acts as an anchor, especially with the new program. Young people often times like to be free and able to move around as they please when needed. A home stops you from doing this and it means that you may not be able to take a job somewhere else. With the Maryland program, you must sign a contract to live in the home for five years, which is a big commitment for someone who is not yet financially established or in their chosen career.
Another problem with the program is that it is really designed for young people who have just graduated and have a hefty amount of debt. The older you get, the lower the amount of debt you have in the first place and the less you actually benefit from the program. A student with $40,000 in debt can purchase a $200,000 home and receive somewhere near $30,000 in forgiveness, but pay this debt down over time and the amount you receive is much less, especially if you only have $10,000 left to pay in student loan debt.
Final Thoughts on Student Loan Debt and the SmartBuy Program
The SmartBuy program is not necessarily a bad idea, but it is not one of the best ideas either and it only serves a small amount of those with student loan debt. It is important to understand the program in full before you apply to it and understand what it is that you are getting yourself into.
If you do want to own a home, no matter what your age, this may be a good program for you, especially if you have a lot of student loan debt. Unfortunately, as you pay down your student loan debt, this program is not as lucrative as you may have thought it to be.
Those who support the Maryland program argue that home buying will work to counteract the effects of the student debt. In fact, if you think about it in a different light, the money you would have spent for your student loans now goes into a home you will eventually own.
One thing you NEED to keep in mind before you sign up for the program is how much money you can afford to spend on your mortgage. It would not be wise to take out a mortgage if you are unable to pay your bills right now. No program is worth you going into more debt or financial ruin, so make your choices wisely when it comes to this program.