Active-duty military members, including reservists serving under active orders, face special challenges in the timely servicing of their student loans. In recognition of this, Congress has provided legislative and regulatory relief both specific to military service as well as to public service in general. While some of these provisions are automatic, others require the military member to take action in order to reap the intended benefits. Below are the three primary ways in which military members can receive special treatment for their student loans.
1) Servicemembers Civil Relief Act (SCRA)
Included in Article II of the act is a provision that “the rate of interest on debts incurred prior to entry into military service shall not exceed six per cent per annum unless a court finds that the ability of the serviceman to pay more is not materially affected by reason of his service. Interest includes service charges, renewal charges, fees or any other charges” (Harman, 1966, p. 331). Loan providers should do this automatically, however it does not reliably occur, so the best action for military members is to submit a Department of Education SCRA Interest Rate Limitation Request to the lender along with a copy of military orders showing the borrower is now in a protected status (Congressional Research Service, 2021).
Note that the interest rate cap applies to loans made after August of 2008 and prior to military service. As noted by Dadd (2014), servicemembers must be aware that loan consolidations made while in military service may render portions of the new loan ineligible for the interest rate cap provision, so particular care must be taken when advising on student loan consolidations.
2) Public Service Loan Forgiveness (PLSF)
Under PSLF, borrowers may have their federal Direct Loan balances forgiven following 120 qualifying monthly repayments and the balance forgiven is not considered taxable income. Annual documentation requirements of income-based repayment plans are waived for active duty military.
Since a standard repayment plan would normally pay off the loan with 120 full monthly payments, there is little benefit to PSLF for such borrowers. Under an income-driven repayment plan, however, there may be significant savings as those repayment plans could have maximum repayment periods of up to 25 years.
Keep in mind that:
- Any payments made while the loan is in forbearance or grace periods (such as while attending college under a military commissioning program) do not count against the 120 full monthly payments required.
- Excess payments made on student loans above the full required payment do not reduce the number of payments needed.
- Consolidation of Direct Loans will cause a restart of the 120-payment counter.
3) No Interest Accrual in Combat Deployments
The third major provision made by Congress for military student loan holders is the waiver of interest payments on federal Direct Loans while deployed into designated hostile fire areas. This applies to Direct Loans made after October, 2008, including those portions of Direct Consolidation Loans which were used to pay off other federal student loans incurred after October 2008. The guidance allows for up to 60 months of zero interest while in a hostile deployment area.
As reported by State News Service (2020), the interest rate waiver has not been reliably applied and that the unnecessary costs to eligible military borrowers are estimated to exceed $100 million. As this benefit is not yet automatic, the Department of Education (2018) highlights that the military member needs to submit to the loan servicer either (a) a certifying official’s signed statement, or (b) military orders to a hostile fire area, or (c) a military Leave and Earnings Statement indicating payment of hostile or imminent danger pay.
Many of the benefits mentioned here require actions on the part of the servicemember and deserve their attention. Most military facilities have educational support and legal offices which can assist the military member in applying for and obtaining these benefits. Taking full advantage of the tools available can result in substantial savings.
Guest Contributor: Bob Armstrong, University of Alabama
- Congressional Research Service. (2021). The Servicemembers Civil Relief Act (SCRA): Section-by-Section Summary. https://crsreports.congress.gov/product/pdf/R/R45283/6.
- Congressional Research Service. (2019). Federal Student Loans made Through the William D. Ford Federal Direct Loan Program: Terms and Conditions for Borrowers. https://crsreports.congress.gov/product/pdf/R/R45931.
- Dadd, L. (2014). Military Matters: Compliant collections. Collector (0010082X), 79(9), 30–32.
- Donnelly, K. (2020). Navigating the Public Service Loan Forgiveness Program. CPA Journal, 90(5), 42–47.
- Feddis, N., & Savoie, R. (2016). Consumer lending to military members: The Military Lending Act final rule and Servicemembers Civil Relief Act enforcement. Business Lawyer, 71(2), 759–769.
- Harman, J. (1966). Bird’s-eye view of the soldiers’ and sailors’ relief act, a. Journal of the Bar Association of the State of Kansas, 35(4), 291-333.
- Hoyt, A. A. (2020). The top five mistakes of federal student loan borrowers. Journal of Financial Service Professionals, 74(6), 73–80.
- States News Service. (2020, November 11). Attorney General Becarra urges Secretary DeVos and Acting Secretary Miller to ensure critical student loan interest relief for America’s combat veterans. https://link.gale.com/apps/doc/A641235072/AONE?u=tusc49521&sid=AONE&xid=84cf0253
- United States Department of Education. (2020). November 2020 PSLF Report. https://studentaid.gov/sites/default/files/fsawg/datacenter/library/pslf-nov-2020.xls
- United States Department of Education. (2018). For Members of the Armed Forces: What you need to know about your federal student loan benefits. https://studentaid.gov/sites/default/files/military-student-loan-benefits.pdf