Tips for servicemembers with student debt
The unique nature of life in the military can create financial challenges for servicemembers. This is especially true for servicemembers with student loans. We routinely hear from servicemembers who enter military service not simply with student loans, but because of them. And yet, military borrowers continue to tell us about the obstacles they face when repaying their student loans, including accessing essential protections like Public Service Loan Forgiveness (PSLF).
When military borrowers are not able to get on track for programs like PSLF, they can end up paying tens of thousands of dollars they would otherwise not owe. Servicemembers report that instead of getting into an income-driven repayment (IDR) plan and on track for PSLF, their servicers would steer them toward options like military deferment or forbearance. While these options provide short-term payment relief, they can increase the overall cost of student loans and delay access to loan forgiveness options available through IDR or PSLF.
We previously reported on how thousands of servicemembers with student loans are enrolled in military deferment for extended periods despite the availability of IDR. We reported that, on average, servicemembers who are in military deferment spend two and a half years in that status. During these years, borrowers may be missing out on making payments based on their incomes that would qualify toward loan forgiveness. We also reported that military deferment can cause a servicemember to pay thousands of dollars more than if they had promptly entered IDR and PSLF. As one servicemember explains:
I told [my servicer] I could not pay the monthly payment of $1,200 a month and ... was reporting for active service. At no time did anyone suggest that I apply for an income driven repayment plan, which I found out a month ago, would have been my best option, as the payments would have been small, affordable for an E1-E5, and would have counted toward the 120 payments for public service loan forgiveness. I was encouraged, on that phone call, to place my loans into long term military deferment. At no time during this conversation was I ever told [that the interest on] my loans would capitalize.
After leaving school, most student loan borrowers enter a six month grace period in which no payments are due. Generally, student loan borrowers must wait until close to the end of their grace period to enroll in an alternative repayment plan, like an IDR plan. Military borrowers report that when they leave college and enlist in the military, this delay often coincides with basic training. By the time servicemembers are eligible to submit their applications for IDR enrollment, they may be in the middle of training and therefore have severely limited access to computers and phones. Military borrowers report that as a result, they are not able to seek assistance from their servicer to navigate the IDR enrollment process. These servicemembers state that they enter repayment and immediately find themselves in financial distress.
Military borrowers have rights
In addition to IDR, active-duty military borrowers with student loans may also be eligible for certain interest rate protections on loans taken out before entering military service. Some private student lenders also offer repayment benefits to military borrowers. Additionally, active duty servicemembers (and veterans) meeting certain requirements may have the balance of their federal student loans forgiven after working in public service for ten years.
We are committed to addressing the personal financial challenges affecting servicemembers, veterans, and their families. If you have questions about repaying student loans, check out our repayment tool to find out more about how you can tackle your student loan debt. For help handling financial challenges at every step of your military career, visit our guide through the military lifecycle. If you have a problem with a consumer financial product—or if you know someone in that situation—remember that you can submit a complaint online or by calling 855-411-2372. You have the right to be heard.
Seth Frotman is the CFPB’s Student Loan Ombudsman. To learn more about our work for students and young consumers, visit consumerfinance.gov/students.
Paul Kantwill is the CFPB’s Assistant Director for the Office for Servicemembers Affairs. To learn more about our work for servicemembers, visit consumerfinance.gov/servicemembers.