Students’ Rights Under The SCRA
Students with active military status have more financial protections than ordinary citizens under the Servicemembers Civil Relief Act. These protections are designed to keep members of the armed forces from finding themselves in a position of undue duress at a time when their focus should be on serving their country.
As important as it is for servicemembers to be aware of the protections that they hold, in many cases the legal responsibility for understanding the SCRA, performing a military records search and complying with the law falls on the companies and individuals who do business with them. This means that private education loan servicers should remain aware of the protections afforded active military status servicemembers under the SCRA and work with a partner to regularly perform a military records search to identify those loan holders to whom the protections apply.
Many states add specific protections under local extensions of the SCRA, but the federal protections always remain in place. As per Federal Student Aid, an office at the U.S. Department of Education, the federal guidelines are as follows:
Interest rate caps
The maximum annual interest rate that can be applied to a federal or private education loan obtained by a servicemember prior to service is 6 percent. In the past, it was the responsibility of servicemembers to contact their loan servicers to request the lower rate, but this is no longer the case. Now, most loan providers are explicitly required to perform a military records search and apply the 6 percent cap to applicable loan holders.
Military service deferment
During certain periods of their service, servicemembers are entitled to a deferment. This deferment must be requested, but has to be granted during a war or other military operation in which they are involved. National emergencies are also grounds for a military service deferment, as is the period immediately following active duty.
Public service forgiveness
As is the case with other people involved in public service, military servicemembers may qualify for loan forgiveness in some cases. Generally, a servicemember must have made 120 qualifying payments after October 1, 2007, while employed in public service.
No interest for special circumstances
Those servicemembers who are serving in a hostile area do not have to pay interest on direct loans made on or after October 1, 2008. This arrangement can last for up to five years.
Servicemembers who become disabled as a result of or in connection with their service may qualify for a complete discharge of their federal student loans. There are also circumstances under which the Department of Defense will repay a portion or all of a servicemember’s student loans.
Income based payments
Servicemembers are often entitled to repayment plans under which monthly payments are calculated based on income. These can result in low or null payment amounts, which continue to count toward public service loan forgiveness.
HEROES Act waiver
In order to simplify the process of arranging finances and budgeting for servicemembers with active duty status, the Department of Education may waive documentation requirements. This means that a servicemember may request to have monthly payment amounts maintained without the need to provide updated information about family size and income.
Penalties under the SCRA
The Servicemembers Civil Relief Act is often strictly enforced, even against private loan servicers of private or federal student loans. Those organizations or individuals who fail to observe servicemembers’ protections under the SCRA may be subject to civil actions in which a court may grant equitable or declaratory relief, award monetary damages or other appropriate relief and even assess a civil penalty to vindicate public interest.
Because of these stern penalties and the recent public interest in violations of the SCRA, it is crucial that student loan servicers do their due diligence to comply with this law. The Servicemembers Civil Relief Act Centralized Verification Service can help.