By Laura Royer
Military service can be appealing to new recruits because of education benefits. Service members can expect to receive opportunities for financial aid as well as the benefits of lower to zero percent interest rates, deferment, and special repayment programs or even partial to full loan forgiveness.
There are many scholarships available for military members and their families. Service members are often aware of the opportunities for receiving financial aid to use during or after service, like the GI Bill and Military Tuition Assistance. However, understanding programs for relieving student loan debt that has already been incurred can be confusing, and paying these debts during service can lead to unnecessary financial stress.
Student Loan Interest
Student loan interest is a concern for Service members who may not be able to pay more than the minimum required payment while serving. While the minimum payment is being made, the growth of the loan, due to interest, can be daunting. The Servicemembers Civil Relief Act (SCRA) helps to alleviate the financial burden of student loans for active-duty Service members, active reservists, and active Guard. There are additional relief measures for deployed Service members. The SCRA caps interest on loans incurred before service at a 6% interest rate SCRA enforcement should be automatic for federal loans but need to be requested from private lenders.
The federal Direct Loan lending program also gives allowances for Service members who have served in areas of hostile fire post-October 2008. For the period of deployment, Direct Loan interest rates will be held at 0% for up to a total of 60 months. This allowance can be applied retroactively even after the military service has been completed.
Student Loan Deferment
Deferment can be requested when called to active duty during a period of wartime for the National Guard or Reservists. It can also be requested by active-duty Service members when stationed or deployed to a base that is not listed as their home base. Deferments are a way to postpone payments in a time of need. Loan borrowers should be aware of accruing interest while loans are in deferment. The Department of Education usually pays the interest on subsidized federal loans in deferment, but most other loans will continue to accrue interest. This interest can be paid during deferment without penalty or it can be added to the balance of the loan.
Student Loan Repayment Options
To lessen the amount owed each month towards outstanding student loan debt, Service members should investigate loan repayment options. These plans are income-driven and are designed to help loan borrowers more easily budget their monthly expenses. Direct Loan lending services and other federal lending services offer reduced payment plans based on income and also assist Service members who may qualify for the automatic recertification process set for by the HEROES Act waiver. This waiver is beneficial to Service members who may be deployed or who are unable to have the recertification paperwork completed within the designated time frame. Also, depending upon the branch of Service, there are specific loan repayment plans available, and PFMs need to know what is offered and share it with clients.
Student Loan Forgiveness
There are a few opportunities for Service members to have their student loans fully or partially forgiven by the government. If a Service member becomes permanently disabled, they will automatically receive 100% student loan forgiveness. Military service under the Department of Defense or Homeland Security as a member of the Coast Guard may also qualify a Service member for forgiveness under the Public Service Loan Forgiveness program.
The National Defense for Student Loan Discharge is available for either a 50% or 100% forgiveness of federal Perkins loans when serving in hostile-fire or imminent danger pay zones for a minimum of 12 months. These programs are designed to alleviate the burden of federal student loans on Service members.
Private lenders are not required by law to offer the same allowances, but any private lenders will and do honor these same allowances upon request. Service members who believe they may qualify for any of these programs should work with their loan providers to uncover and explore all available options.
Photo by Steven Depolo. CC BY 2.0.