DOD, financial bureau teams up to address student loan problems
WASHINGTON - The Defense Department will work with the Consumer Financial Protection Bureau to ensure the financial health of service members and their families, Defense Secretary Leon E. Panetta said Oct.18.
Panetta and Holly Petraeus, the bureau's assistant director for service members' concerns, spoke specifically about the financial burden of student loans place.
"The number one reason people in the service lose their security clearance is because of financial problems," Panetta said. "And that's something that we absolutely now have to address."
Petraeus presented the results of a report on the challenges that service members face in repaying student loans. This is a problem, Panetta said, noting that some 41 percent of service members are paying off an education-related loan.
"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," he said.
Petraeus said she repeatedly hears of the burden of education loans whenever she visits troops. "Service members are entering the military with student loan debt, and as a result facing both financial challenges and paperwork challenges," she said.
In one case, a sailor told her of entering the Navy carrying $100,000 in student loan debts. "He joined the Navy because it was the only way he believed he could make it, but most of his Navy paycheck was going towards paying off those loans," she said.
Petraeus said this is not an isolated case, and she is concerned that service members are not getting the information they need about programs and policies that could help them reduce that debt significantly while they are on active duty.
"This is an opportunity for us to fix an issue that is impacting the financial readiness of the force and causing harm to military consumers," she said. "We need to be proactive in addressing problems in the servicing of student loans for members of our military."
The student loan problem may be in the same category as home loans. In past years, the bureau found that mortgage lenders consistently failed to give troops the protections they earned under the Service Members Civil Relief Act.
"There are real concerns of a similar problem with student loan servicing and SCRA violations," Petraeus said. "In fact, I think the problem may be greater with student loans than it was with mortgages because I believe many more young service members enter active duty with student loans than with a mortgage.
Service members are having problems invoking consumer protection rights under the legislation. They do not know about repayment alternatives, and student loan servicers "are providing them with inaccurate or incomplete information about their options," she said. "And they are confused by eligibility requirements for benefits that are so complicated that they either can't figure out what they are entitled to or don't realize that taking one benefit might exclude them from being eligible for another, more helpful one."
And this is real money. Petraeus said the young sailor carrying the $100,000 debt burden could pay nearly $25,000 extra if he doesn't receive the active-duty interest rate cap. "And if he stays in the Navy for 10 years but doesn't know about or doesn't use the income-based repayment plan, the Public Service Loan Forgiveness Program and the SCRA rate cap, he could lose out on nearly $76,000 that he could have cut off his debt in those 10 years," she said.
The bureau will be teaming up with DOD to train judge advocate general personnel, personal financial managers and education service officers so that they know about these benefits and consumer protection, she said. "We also plan to push out the message through a variety of media to all service members," Petraeus said. "We want them to know that even if they did not know about or ask for student loan repayment benefits when they entered the military, it's not too late to do it now."