Student Loan Repayment Options for Veterans and Service Members
Veterans and members of the U.S. Armed Forces have access to the same deferment, forbearance and repayment options as other student loan borrowers, plus some extra options.
Servicemember Civil Relief Act (SCRA) Interest Rate Reduction
The Servicemembers Civil Relief Act caps the interest rate at 6% for loans incurred by members of the U.S. Armed Forces. The debt must have been incurred prior to the start of active duty military service.
The excess interest of more than 6% must be forgiven and cannot be charged to the servicemember after leaving active duty service. The loan must be reamortized at the lower interest rate, yielding a lower monthly payment for the duration of active duty service.
This benefit begins when the servicemember enters active duty service and ends after discharge from active duty service for most loans. (For mortgages, the 6% interest rate cap continues for one year after discharge from active duty service.)
The interest rate cap applies to both federal and private student loans. The interest rate reduction is automatic for federal student loans. It is not automatic for private student loans.
To request the interest rate cap, servicemembers should provide a written request to the lender or loan servicer, along with a copy of their orders calling them to active duty service. Servicemembers can request the interest rate cap during active duty service and up to 180 days after discharge. The interest rate cap is retroactive to start of active duty service.
Zero-Interest Rate for Service in a Hostile Fire Area
Servicemembers who serve in a hostile area that qualifies for special pay are eligible for a zero percent interest rate on their Federal Direct Loans during their deployment. The loans must have been made on or after Oct. 1, 2008. This interest rate reduction is available for up to 60 months and can be applied retroactively even after discharge from active duty service.
Military Service Deferment
In certain circumstances, members of the U.S. Armed Forces can defer repayment on their federal student loans when called to active duty service. During the military deferment, the U.S. Department of Education pays the interest on subsidized loans.
The interest on unsubsidized loans remains the responsibility of the servicemember and will be capitalized if it is not paid as it accrues. Military service deferments can be limited to 60 months and end 180 days after discharge from active duty service.
The Post-Active Duty Student Deferment starts after discharge from active duty service and ends when the borrower resumes enrollment at a college on at least a half-time basis or within 13 months, whichever comes first.
These deferments apply only to federal student loans. Most private student loan programs, however, will try to accommodate servicemembers. Ask about reduced payments, such as interest-only payments or forbearances.
HEROES Act Waivers
The HEROES Act of 2003 (P.L. 108-76 and P.L. 110-93) provides the U.S. Department of Education with the authority to waive certain student aid laws and regulations for members of the U.S. Armed Forces who are called to active duty service for more than 30 consecutive days.
The U.S. Department of Education published several waivers in the Federal Register on Dec. 12, 2003. In particular, military service for up to three years does not count against deferment, forbearance and grace periods on federal student loans.
If the servicemember is in default on a federal student loan, collection activities can be suspended for up to three years of active duty military service. The period of military service also is excluded from loan rehabilitation agreements, bypassing the requirement that the payments are consecutive.
Total and Permanent Disability Discharge
If the U.S. Department of Veterans Affairs (VA) has determined that a veteran is unemployable due to a service-connected disability that is 100% disabling, the veteran is eligible for a Total and Permanent Disability (TPD) Discharge for their federal student loans. If approved, loan holders will return any payments received on or after the date the VA determined that the borrower is unemployable due to a service-connected disability.
If a veteran’s loans receive a TPD discharge because of a service-connected disability, the veteran will not be subject to the three-year post-discharge monitoring period that apply to borrowers who qualify for a TPD discharge because of Social Security Administration (SSA) documentation or a doctor’s certification. Visit www.disabilitydischarge.com for more information.
Public Service Loan Forgiveness
Military service qualifies for public service loan forgiveness. The servicemember should choose an income-driven repayment plan, such as pay-as-you-earn repayment or income-based repayment.
After the servicemember is discharged from active duty service, the servicemember should pursue another public service profession, such as teaching, emergency responder or government, for the remainder of the 10-year period.
When financial aid and federal student loans aren't enough to cover all college costs, consider financing the gap with private student loans. Shop around to find the loans that best fit your needs.