Student Loan Relief for Military Service Members: A Checklist

In acknowledgment of their service to the country, the Department of Education (DOE) permits servicemembers to qualify for multiple types of student loan relief by virtue of their military service.

For the purposes of student loan relief, members of the military include personnel in the Army, Navy, Air Force, National Guard, and Coast Guard.

Current and Former Federal Student Loan Types

The extent of available federal student loan types is limited:

• As part of DOE’s Direct Loan Program, the federal student loan types currently available to US student borrowers include:
  • direct subsidized loans;
  • direct unsubsidized loans;
  • direct Parent Loans for Undergraduate Students (PLUS) Loans; and
  • direct consolidation loans.
• Other federal student loan programs were historically available to borrowers, but those programs have since ended, which terminated programs include:
  • Perkins loans; and
  • Federal Family Education Loan (FFEL) program loans, including subsidized and unsubsidized federal Stafford loans and FFEL PLUS grad, parent, and consolidation loans.
• While no further loans are currently being made under either the Perkins loan program or the FFEL program, many borrowers under these programs remain in repayment today.

Student Loan Repayment Relief

To decrease the burden of student loan repayment, military servicemembers are eligible for:

• A 6 percent interest cap on any debt incurred before enlisting in the military (see Servicemembers Civil Relief Act (SCRA) Interest Rate Cap, below);
• A 0 percent interest rate during active duty (10 U.S.C. 101(d)(1)) service (see 0 percent Interest, below); and
• Income-driven repayment plans (see Income-Driven Repayment, below).

Servicemembers Civil Relief Act (SCRA) Interest Rate Cap

• Under the Servicemembers Civil Relief Act (SCRA), interest on student loans taken out before entering military service is:
  • capped at 6 percent interest during active-duty military; and
  • forgiven to the extent interest exceeds 6 percent.

(50 U.S.C. App. § 527.)

• Federal and private student loans disbursed before the borrower’s active duty start date are also eligible for the SCRA interest rate cap when the active-duty periods fall on or after August 14, 2008.
• Federal loans consolidated after the borrower’s active-duty start date may not be eligible for the interest rate cap.
• To secure this interest rate cap either:
  • the loan servicer will proactively check the Defense Manpower Data Center (DMDC), a database maintained by the Department of Defense, for active-duty status and automatically apply the benefit to eligible loans; or
  • the servicemember will submit a copy of their military orders to their servicer.
• Military servicemembers that consolidate their federal loans into a direct consolidation loan after their active-duty start date may not be eligible for an interest rate cap.

0 percent Interest

• Military servicemembers serving in a hostile fire or imminent danger area qualifying them for special pay (37 U.S.C. § 310(a)(2)) do not have to pay interest on their student loans for up to 60 months on:
  • federal direct loans made on or after October 1, 2008; and
  • the portion of a direct consolidation loan that represents loans made on or after October 1, 2008.
• Proof of deployment in a hostile fire or imminent danger area must be submitted to the borrower’s loan servicer, which can include one of the following:
  • a certifying official’s statement and signature;
  • military orders showing the borrower is serving in a hostile fire or imminent danger area; and
  • a leave and earnings statement showing the borrower is receiving hostile fire or imminent danger pay.

(See 20 U.S.C. § 1087e(o)(1).)

Income-Driven Repayment

Under income-driven repayment (IDR) programs, military servicemember borrowers can:

• Repay significantly less than the total borrowed loan amounts.
• Have their remaining federal student loan balance forgiven after a period of repayment under qualifying conditions.
• Make payments in amounts based on their adjusted gross income (AGI), which payments constitute a percentage of their discretionary income depending on the borrower’s:
  • specific IDR plan;
  • increase or decrease of their income; and
  • family size.

The borrower must recertify their income and family size annually.

• Include towards the borrower’s total repayment period, periods:
  • of economic hardship deferment;
  • of repayment under certain other repayment plans; and
  • where the required payment is zero.

Student Loan Repayment Postponement

• Military servicemembers are given the opportunity to postpone their student loan repayments during and immediately after active-duty military service.
• This gives the servicemember time to prepare for the transition from military service to school or to pursue a job.
• Options for postponement include:
  • loan deferment (see Loan Deferment for Military Servicemembers, below); and
  • mandatory loan forbearance (see Mandatory Loan Forbearance for National Guard Members, below).

Loan Deferment for Military Servicemembers

• Student loan deferment is available to military servicemembers following active duty but excludes training or attendance at a service school.
• There are two types of deferment available to military servicemembers:
  • military service deferment (see Military Service Deferment, below); and
  • post-active-duty deferment (see Post-Active-Duty Deferment, below).
• Both types of deferment may be granted simultaneously, however the deferment periods run concurrently.

Military Service Deferment

• A military servicemember on active duty can obtain a student loan repayment deferment for 180 days after the completion of the qualifying military service.
• To obtain a student loan deferment, the service member must submit one of the following to their student loan servicer:
  • a completed Military Service and Post-Active Duty Student Deferment Request form;
  • a written statement from the borrower’s commanding or personnel officer along with the completed borrower section of the Military Service and Post-Active Duty Student Deferment Request form;
  • a copy of military orders along with the completed borrower section of the Military Service and Post-Active Duty Student Deferment Request form; or
  • a verbal request from the borrower or their representative, if records cannot be submitted, for the initial 12-month period for federal loans.

(34 C.F.R. 685.204(h).)

Post-Active-Duty Deferment

• A military servicemember completing active-duty service and preparing to return to school or find employment can obtain a student loan repayment deferment that ends the earlier of:
  • the date the post-active duty servicemember resumes enrollment at an eligible school on at least a half-time basis; and
  • 13 months following the completion of active-duty service and any applicable grace period.
• To obtain a post-active-duty deferment, the servicemember must submit one of the following to their student loan servicer:
  • a completed Military Service and Post-Active Duty Student Deferment Request form;
  • a written statement from the borrower’s commanding or personnel officer along with the completed borrower section of the Military Service and Post-Active Duty Student Deferment Request form; or
  • a copy of the borrower’s military orders.

(34 C.F.R. 685.204(i).)

Mandatory Loan Forbearance for National Guard Members

Active and retired members of the National Guard during a time when a governor activated National Guard personnel for active state duty for a period of more than 30 consecutive days that qualify for a post-active duty student deferment (see Post-Active Duty Deferment, above), but not the military service deferment (see Military Service Deferment, above), can request forbearance from their loan holder for their period of active duty service. For a National Guard Member to obtain mandatory student loan forbearance:

• Must be granted by the loan servicer if the borrower meets the eligibility on completion of the Mandatory Forbearance Request form.
• Only applies to borrowers of direct loans and FFEL program loans.
• Postpones the borrower’s obligation to make their student loan repayments for a period of time.
• Permits interest to accrue during the forbearance period, with the option for the borrower to either:
  • pay the interest on the loan as it accrues; or
  • allow the interest to capitalize, meaning it accrues and is added to the loan’s principal balance at the end of the forbearance period.

Student Loan Repayment After Default

• Default on a federal student loan occurs when the borrower exceeds 270 days without making a required monthly payment under a repayment plan (34 C.F.R. §§ 682.200 and 685.102).
  
• Military servicemembers defaulting on their student loans are given certain leeway when seeking to bring their loans back into good standing by using:
  • the Fresh Start Program (see Fresh Start, below); or
  • federal loan consolidation (see Federal Loan Consolidation, below).
• One of the main ways to get out of default is typically through loan rehabilitation. Loan rehabilitation has been temporarily replaced by the Fresh Start program. After Fresh Start ends, loan rehabilitation will be an option again (see Student Loan Rehabilitation, below).

Fresh Start

Fresh Start is a temporary rehabilitation program for defaulted student loans that ends on September 30, 2024. The Fresh Start program offers borrowers with defaulted student who enroll in the program the following benefits:

• The defaulted loans are:
  • transferred from the Default Resolution Group or guaranty agency to a loan servicer; and
  • returned to in repayment status.
• The record of the default is removed from the borrower’s credit report.
• The borrower’s loans are transferred to a new servicer.
• Borrowers are automatically put on a standard repayment plan, but borrowers can apply for an IDR plan.

After the Fresh Start program, borrowers:

• Can access federal student aid.
• Will get relief from collections calls and their:
  • tax refunds and child tax credits will not be withheld;
  • wages will not be garnished; and
  • social security payments, including disability benefits, will not be withheld.
• Will no longer have their default status reported to the government credit reporting system.
• Will not have their participation in the Fresh Start program counted as their one chance to rehabilitate their loans.
• Will regain access to:
  • IDR plans;
  • student loan forgiveness programs including PSLF; and
  • short term relief in the form of forbearance and deferment.

Federal Loan Consolidation

A Direct Consolidation Loan combines a borrower’s federal student loans that are not in default and are not subject to garnishment or other forms of collections into one loan with a single monthly payment. To consolidate loans in default into a Direct Consolidation Loan, the borrower should:

• Apply on the DOE studentaid.gov website.
• Choose which loans to consolidate, considering that:
  • if a loan in default is already consolidated it can be reconsolidated if there is at least one other eligible loan in the consolidation or if it is an FFEL Consolidation Loan; and
  • the interest rate for the new loan is a fixed rate based on the weighted average of the interest rates of the loans included in the application.
• Make three consecutive reasonable and affordable monthly payments.
  
• Agree to repay the loans under an IDR plan.

For qualifying military servicemembers an interruption of the three consecutive required payments is permitted and payments may be resumed after their active-duty service is completed (see HEROS Act of 2003, PL 108-76, August 18, 2003, 117 Stat 904).

Student Loan Rehabilitation

• The student loan rehabilitation program allows borrowers a one-time opportunity to rehabilitate their federal loans back into good standing following a default.
• Rehabilitation requires the borrower to:
  • request rehabilitation from the collection agency holding the defaulted loan. The loan servicer must provide the borrower with the rehabilitation agreement within 15 days of the determination of the reasonable and affordable payment amount;
  • sign a loan rehabilitation agreement with the collection agency and return it along with proof of income and a tax return or two recent pay stubs;
  • make monthly payments that are 15 percent of the borrower’s AGI for the family size on the borrower’s tax return. If the borrower cannot afford that amount, they can request a lower payment based on the borrower’s discretionary income, subject to a minimum payment of $5;
  • make nine on-time payments (within 20 days of the due date) over a ten-month period. Wage garnishment due to default stops after five rehabilitation payments have been made; and
  • make payments voluntarily, meaning not under a tax refund seizure or garnishment of wages.
• Qualifying military service members may have an interruption in the ten-month consecutive rehabilitation payment period and still can rehabilitate their loans.
• These borrowers can resume rehabilitation payments after their service terminates (see Higher Education Relief Opportunities for Students (HEROS) Act of 2003, PL 108-76, August 18, 2003, 117 Stat 904).
• Rehabilitation will become an option again after the sunset of the Fresh Start program on September 30, 2024.

Student Loan Forgiveness, Cancellation, and Discharge

• By virtue of their service to the country, military servicemembers are offered opportunities for student loan:
  • forgiveness (see Public Service Loan Forgiveness, below);
  • cancellation (see Perkins Loan Cancellation, below); and
  • discharge (see Total and Permanent Disability Discharge for Veterans, below).

Public Service Loan Forgiveness

The Public Service Loan Forgiveness (PSLF) program forgives the remaining balance of an individual’s federal student loans if the military service member:

• Is employed full time (at least 30-hours per week) in military service for a ten-year period.
• Holds direct loans (or consolidates their other federal student loans into a direct consolidation loan).
• Makes repayments of their loans under:
  • an IDR plan; or
  • a student loan repayment plan of fixed monthly payments spread over ten years (ten-year standard repayment plan).
• Makes 120 qualifying payments. A qualifying monthly payment is a payment made:
  • after October 1, 2007;
  • under a qualifying repayment plan;
  • for the full amount due as shown on the borrower’s bill;
  • no later than 15 days after the due date; and
  • while employed full-time by the military.
• A qualifying monthly payment cannot be made while the borrower is in:
  • school;
    
  • a repayment grace period (for a period of time after the borrower graduates, leaves school, or drops below half-time enrollment and is not required to make payments); or
  • a deferment or a forbearance, other than a qualifying deferment or forbearance, which includes both military service deferment and post-active-duty deferment (see Military Service Deferment, above, and Post-Active Active-Duty Deferment, above).

Perkins Loan Cancellation

A military service member can qualify for partial or total cancellation of their Perkins loan.

• Cancellation of up to 50 percent of a Perkins loan is available:
  • for military service members on active-duty service that ended before August 14, 2008, in an area of hostilities that qualifies for special pay; and
  • at a rate of 12.5 percent of the original loan principal, plus the interest on the unpaid balance accruing during the year of qualifying service, for each complete year of qualifying service.
• Cancellation of up to 100 percent of a Perkins loan is available:
  • for a military servicemember’s full year of active-duty service that begins on or after August 14, 2008, in an area of hostilities that qualifies for special pay; and
  • at a rate of 15 percent for the first and second year of qualifying service, 20 percent for the third and fourth year of qualifying service, and 30 percent for the fifth year of qualifying service.

(34 CFR 674.59.)

Total and Permanent Disability Discharge for Veterans

Under 20 U.S.C. § 1087(a), a military veteran can discharge certain federal loans by:

• Providing records from the US Department of Veterans Affairs (VA) showing they are unemployable due to the veteran’s total and permanent disability (TPD) from:
  • a military service-connected disability that is completely disabling; or
  • a total disability based on an individual unemployability rating.
• Submitting their TPD discharge application to Nelnet (the TPD discharge servicer) with VA records of their disability.

A veteran receiving TPD discharge approval based on records from the VA is not subject to a post-discharge monitoring period.

Recommendations for Deployed Military Servicemembers

• Deployed servicemembers are at risk of encountering loan repayment difficulties when deployed and lack immediate access to their loan information or payment methods.
• To avoid repayment complications, servicemembers should consider:
  • granting power of attorney to an individual who can reliably manage the servicemember’s student loans;
  • establishing an account on the servicer’s website to allow for online payments and signing up for automatic payments to keep the loan in good standing;
  • updating the servicer with their active-duty status and placing an active-duty alert on their credit report; and
  • making interest payments, if possible, even if military deferment is available, to lower the total balance after active duty ends (see Loan Deferment for Military Servicemembers, above).