Presidential Order Puts Caps on Student Loans
MARINE CORPS AIR STATION CHERRY POINT, N.C. - President Barrack Obama signed an executive order June 9 allowing service members on active duty to have their federal and private student loan interest rates lowered to six percent without the need for additional paperwork under the Service Members Civil Relief Act.
The SCRA provides protection for active duty service members from civil actions. It provides protection in areas like financial management, rental agreements, security deposits, evictions, installment contracts, credit card interest rates, mortgages, civil judicial proceedings, income tax payments and student loans.
In October 2012, the Consumer Financial Protection Bureau published the Next Front, a report that identified trends concerning student loan borrowers and their difficulties properly using their SCRA. The bureau shared the consumer complaints featured in the report with the Department of Justice, which led to the recent settlement against Sallie Mae, the nation’s largest student loan servicer. The settlement required the company to determine which of its customers were qualified for the 6 percent interest rate plan, and apply the cap without the need for borrowers to submit a request or military orders.
The Presidential Executive Order extends this relief to all federal student loan borrowers, not just those with services from Sallie Mae.
Service members who are interested in lowering their interest rates are eligible to submit their request up to 180 days after leaving active duty. The lower interest rates will be backdated and applied to the total period of active service.
Any service member who has a federal student loan that was taken out before entering the military; are no longer required to submit a request to their student loan provider, or to send in their orders for the interest rate cap to be applied. The service member’s rate reduction will be applied automatically.
Borrowers with private student loans are still required to contact their student loan servicer to inquire how to obtain their SCRA benefits. The service member will need to send a written request and include a copy of their active duty orders.
Another way service members can manage and lower their monthly student loan payments is through Public Service Loan Forgiveness.
PSLF is a program in place to encourage service members to maintain a consistent, full-time public service job. Within the program, borrowers have to make 120 qualifying payments on their direct loans while employed for 10 years with a designated federal, state or local government agency, entity, organization or not-for-profit organization.
Income Based Repayments set a low monthly payment plan based on the service member’s income and allows them to make progress toward the necessary 120 on-time qualifying payments for loan forgiveness.
For service members with newer loans, the Pay As You Earn payment plan requires low monthly payments. Borrowers must have at least one new loan made after Oct. 1, 2011 and no federal loans before October 2007.
Service members with older federal loans may be eligible to take out a new Direct Consolidation Loan in order to apply for Service Loan Forgiveness.
Service members interested in accessing their benefits and protections should read the Consumer Financial Protection Bureau guide here. For more information, visit http://www.consumerfinance.goc/servicemembers and http://1.gov/17Zz6xM.