There are some disturbing trends happening in the student loan arena that have many people worried. While the unpaid trillion dollars in student loan debt is the big news – half of which is currently in deferred – there’s another concern among one segment of borrowers. The US military, including Secretary of Defense Leon Panetta, has become increasingly alarmed at the handling of student loan debt owed by active duty service members and is accusing lenders of not playing fair with our troops.
Headlines scream that 19% of American households owe student loan debt, but what’s more shocking is that number more than doubles for military members. A staggering 41% of active duty service men and women owe student loan debt and it’s causing unneeded financial stress on them when they should be focused on their service. To make matters worse, some lenders are violating legal protections enacted to help service members deal with student loan debt.
Panetta held a press conference at the Pentagon to address student loan burdens on active duty military members and said financial issues are the top reason troops are stripped of their security clearances which can prevent promotions and aggravate financial matters. Panetta told reporters, “Because of their sacrifice, it should be easier, not tougher for service members to be able to pay off their college debt” but says many lenders are cheating military members out of certain protections.
The Servicemembers Civil Relief Act (SCRA) cuts interest rates down to 6% on debts acquired prior to enlisting for active duty service. But it seems that lenders may not be honoring the terms of this legislation and are instead giving bad advice to military members that have them paying far more than they should to service their student loan debt. There are a number of other more favorable repayment options that are not being offered or properly explained to servicemen and women including principal reduction and income-based repayment options. Certain programs can even forgive and effectively cancel out student loans for service to their country, but soldiers are not being told about the best options for them. This has to make for angry customers in the form of soldiers who borrow and then are treated poorly by their lenders.
The Consumer Financial Protection Bureau released a report – The Next Front? Student Loan Servicing and the Cost to Our Men and Women in Uniform – showing that bad advice is costing active duty personnel thousands, and in some cases, tens of thousand more in principal and interest than they should have to pay. The Secretary of Defense said, “I’m concerned that the report that is being issued today warns of student loan companies that not only may confuse service members, but even violate the law in the approach that they take.”
Holly Patraeus of the Consumer Financial Protection Bureau expressed concern because the prevalence of abusive mortgage lending practices against troops could indicate even worse abuses over student loan debt. Patraeus said, “I think the problem may be greater with student loans than it was with mortgages… many more young servicemembers enter active duty with student loans than with a mortgage.” With military suicide rates skyrocketing and one of the main factors attributed being financial stress, it seems shameful that loan companies would take advantage. If you are a military member or any other consumer with student loans that is confused and unsure of how to manage and minimize your debt, consider consulting an expert to help you.