A new report from the Consumer Financial Protection Bureau (CFPB) details the high cost of education for some active duty servicemembers who have not been given accurate or complete information about their student loans. As Inside Higher Ed reported, there have been a significant number of loan servicing problems and errors:
“Some members of the military were denied the 6 percent interest rate cap on both federal and private loans. Others were put into forbearance they did not request, meaning that interest continued to capitalize. In some cases, these errors could cost members of the military tens of thousands of dollars, according to the report, which marked the bureau’s first steps into identifying problems with federal student loans as well as private loans.”
The report, entitled The Next Front: Student Loan Servicing and the Cost to Our Men and Women in Uniform, is the result of an investigation spurred by complaints submitted to the CFPB by servicemembers. In particular, the CFPB found that loan servicing errors have resulted in the following problems:
- Loan servicers have pointed active duty soldiers toward unnecessary deferments and forbearances that accrue interest debt, instead of informing them of the various other options available to them, including repayment plans with reduced interest rates. This is important because if a servicemember has an unsubsidized loan, the interest is not deferred, only the principal—and that can add thousands of dollars to the total payback amount.
- Servicemembers have been subject to unnecessary obstacles if they have tried to exercise the options and protections under the Servicemembers Civil Relief Act (SCRA), including having to file paperwork that is not required. For example, active combat duty soldiers were held to restrictive—and unnecessary according to SCRA—paperwork requirements that prevented them from receiving interest-rate protections.
The report also includes some shocking evidence of the first-hand struggles of student soldiers when they suddenly found themselves in a financial peril that threatens to derail their future civilian lives. The report states,
“A father of a servicemember stated: ‘[Our servicer] says there are 3 loans and that the original loans amounted to a little over $61,000 when [my son] graduated. According to [our servicer,] the amount owed now is almost $85,000. I have been told that the amount went up because [my son] did a 5 month deferral [sic] of payments some time back because of his military service.’”
That’s a penalty of $24,000, all because a loan servicer did not properly advise a young soldier of his federally-guaranteed rights.
There are other ramifications of this problem: Secretary of Defense Leon Panetta commented that financial concerns are the single most frequent reason that security clearances are denied, which can prevent a servicemember from advancing in a military career.
Who is to Blame?
Plenty of finger-pointing has occurred since the release of this information. According to The Hill, at a Pentagon briefing on the results of the investigation, “Defense Secretary Leon Panetta warned that some student loan companies could be violating the law by denying military personnel benefits they’re entitled to.” He said,
“I’m concerned that the report being issued today warns of student loan companies that not only may confuse service members, but may even violate the law in the approach that they take. It should be easier, not tougher, for service members to pay off their college debt.”
Holly Petraeus, who worked for the Better Business Bureau and is now the CFPB’s assistant director of Servicemember Affairs, also argued that “lenders were also at fault for providing bad information.” She added, “I think the problem may be greater with student loans than it was with mortgages,” because “many more young servicemembers enter active duty with student loans than with a mortgage.”
What Can Be Done to Prevent This?
The CFPB report suggests greater efforts on the part of the military to train its staff so that they can better advise student soldiers, and offered information on two new programs the agency offers to help students address these concerns:
- Know Before You Owe: This project, created by the CFPB and the U.S. Department of Education, is similar to the Know Before You Owe mortgage initiative. It provides a recently-completed “financial aid shopping sheet” to “help students understand the debt implications of their college choice.” While this project is still being completed, the report states that “Soon, all schools participating in the Department of Defense Tuition Assistance program will be required to use a ‘shopping sheet’ modeled after this project.” It will be available to all students, too—not just military students.
- Student Debt Repayment Assistant: This is a new web tool offered by the CFPB to help students understand all their loan and repayment options. The CFPB will keep all its information current with the assistance of the military and USDOE.
If you are a military student, you can also check out the Servicemembers Civil Relief Act for the exact provisions of the law and the benefits you are entitled to , or contact the Consumer Financial Protection Bureau directly:
Address: Consumer Financial Protection Bureau
1700 G St. NW Washington, DC 20552
Email: email@example.com firstname.lastname@example.org
Telephone: (855) 411-CFPB (2372) Español : (855) 411-CFPB (2372) TTY/TDD: (855) 729-CFPB (2372)
Fax: (855) 237-2392