Student Loans: Military Borrowers Face Barriers to Accessing Federal Protections

Like most students in college, service members and veterans can find themselves saddled with student loan debt. According to the National Center for Education Statistics, in 2008 the average student debt for graduating active duty service members was about $26,000.

Fortunately, there are federal protections and benefits that aim to help service members manage their private and federal student loan debt. Unfortunately, many military borrowers have trouble taking advantage of these benefits, leading to thousands of dollars in additional debt. And what’s worse is that service members have more than their credit scores to worry about – the implications of a poor financial record are serious as it can threaten security clearances, careers and overall military readiness.

The Consumer Financial Protection Bureau’s (CFPB) new report, “The Next Front? Student Loan Servicing and the Cost to Our Men and Women in Uniform,” describes the challenges military borrowers face accessing these benefits. Among then are an overreliance on lenders for information, the complexities of the patchwork of program options, and misinformed loan servicers. The report also raises the concern that problems faced by military borrowers in the mortgage market extend to the student loan market.

For example, CFPB received complaints from military borrowers who said they were guided into military forbearances or deferments without knowing that they can significantly increase debt over the long term. Alternatives to forbearances and deferments, such as the Income-Based Repayment (IBR) program for federal loans, can save money, but loan servicers aren’t always suggesting those options.

Service members may also face hurdles when seeking protections afforded them under the Service members Civil Relief Act (SCRA), which allows military borrowers to apply for an interest-rate reduction (down to 6%) for financial obligations they made before going on active duty. CFPB has received complaints from service members who were misinformed by their loan servicers or who were required to complete unnecessary paperwork to receive the SCRA interest-rate cap. And they’ve also expressed frustration over trying to confirm that the interest-rate cap had actually been applied upon request. Requiring military borrowers to jump through unnecessary hoops to benefit from these programs places an undue burden on them.

To increase consumer awareness and help military borrowers make informed financial decisions, the CFPB teamed up with the Department of Education (DoE) to create a Know Before You Owe financial aid shopping guide and will soon require all institutional recipients of DoD Tuition Assistance funds to use a similar sheet. The CFPB will also offer a web-based Student Debt Repayment Assistant to help military borrowers understand their student loan repayment options.

Increased financial literacy on the part of the borrower is critical, but so too is increased transparency and competency from the lender. IAVA applauds CFPB and the DoE for their work on these new tools, and encourages all veterans to take advantage of these educational guides and financial benefits.

If you need support in areas like Income-based Repayment (IBR); Public Service Loan Forgiveness (PSLF); annual principal reduction for Perkins loans; Service Members Civil Relief Act (SCRA); military deferments or general deferments and forebearances click on the links above to learn more.

Tom Tarantino is IAVA's Chief Policy Officer and works out of our Washington, D.C. office.