Mike Davies
November 2016

Student Loan Benefit May Hinder Military Borrowers

Government Accountability Office said members of the military are at risk of paying more than they should on their student loans.

In a recent report, the Government Accountability Office said members of the military are at risk of paying more than they should on their student loans. This is due to some inaccurate information and poor coordination between federal agencies.

Military personnel by law, are not supposed to pay more than 6% interest on any loan while they are on active duty. Researchers at GAO, Government Accountability Office, found documents and a website that the Department of Defense uses to keep servicemembers informed of their rights have failed to explain the interest rate cap on student loans in full.

Part of the problem is inconsistency. Student loan servicers are supposed to match their portfolios against the Defense Department’s database to find the active-duty troops to grant the benefit. Already a process that sounds convoluted is compounded by the fact that banks, credit unions, and private education lenders do not have to follow this rule. GAO reports that some banks, credit unions, and private education lenders have voluntarily adopted the process.

In 2014 Sallie Mae was fined $60 million by the government. They were unlawfully charging active-duty servicemembers high-interest rates. The Department of Justice a year ago asked Congress to simplify the process. The department proposed eliminating the requirement that there must be documentation provided by military personnel to their private loan servicers of their orders.

GAO researchers say that federal agencies can make things right by regulating the rule so all education lenders will automatically apply for the benefit. This, however, would require changes to Servicemembers Civil Relief Act. Since 2014, the number of military personnel who benefit from the interest rate cap have more than doubled from 14,970 to 33,309 in 2016 because of some lenders voluntarily matching their files.


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Mike Davies

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