Many of our service members return home to combat other adversaries, from suffering post-traumatic stress to struggling to find employment. Many also shoulder a heavy burden of student loan debt.
As Memorial Day approaches and the country honors its military veterans, the Student Loan Ranger wanted to draw attention to these debt challenges by examining the Consumer Financial Protection Bureau's October 2012 report, "The Next Front?"
In 2008, according to the National Center for Education Statistics, the average cumulative amount of student debt for service members who graduated from college was $25,566. The CFPB report notes that many active-duty service members also accrue thousands of dollars in excess debt because they are guided into bad repayment decisions by loan servicers they rely on for advice.
For example, military deferment and forbearance exempt service members from making monthly payments while on active duty. But loan servicers do not always clarify that interest on unsubsidized federal loans and private loans accrues and capitalizes in deferment and forbearance.
As a result, the CFPB received "complaints from servicemembers stating that they were guided into military deferments or forbearances and were unaware that upon the completion of their active-duty service their total loan debt would balloon due to the accumulation of unpaid interest."
As the report explains, there are alternatives that can instead save service members thousands of dollars. In particular, under Income-Based Repayment (IBR), monthly payments can be set at a fixed amount relative to income and family size. This option allows service members "to reduce their monthly payments while ensuring that their overall debt doesn't balloon."
Additionally, monthly payments made by full-time active-duty service members in IBR count as "qualifying payments" for Public Service Loan Forgiveness. That allows service members to start accumulating the 120 qualifying monthly payments needed to earn forgiveness on their Direct loans.
The CFPB report also reveals the challenges members of the military have in accessing protections afforded by the Servicemembers Civil Relief Act (SCRA). An important protection afforded by the SCRA is that it permits active-duty service members "to request an interest-rate reduction to six percent for financial obligations incurred prior to entry onto active duty."
These financial obligations include both private and federal student loans – a provision that can save service members tens of thousands of dollars. Unfortunately, service members all too often face unnecessary difficulties receiving this and other benefits.
The report found that loan servicers often demand unnecessary paperwork; fail to accurately apply benefits (some service members even complained that the SCRA was used to increase rather than decrease their interest rates); and do not provide current account information so that they can determine if their benefits have been correctly applied or not.
These findings reflect a deep failure on the part of loan servicers. But the Student Loan Ranger believes policymakers and leaders also have a responsibility to create clear, simple and nonconflicting laws and regulations that are easier for service members and loan servicers to understand and implement.
The CFPB recommends that service members and their families use its Financial Aid Shopping Sheet to make sure they understand the true cost of college. Colleges that accept Department of Defense Tuition Assistance and GI Bill funds are required to provide military students with the Shopping Sheet.
The report also recommends using the Student Debt Repayment Assistant to better understand and compare the available repayment options.
This is good advice for all student loan borrowers. It is immensely important to conduct your own research so you're armed with knowledge before you borrow student loans – and understand your options before you repay them.
Mai Brand is an operations coordinator with Equal Justice Works' Educational Debt Relief program. She first worked with educational debt relief issues as an intern at Equal Justice Works and is a recent graduate of Loyola University Maryland.