The Servicemembers Civil Relief Act (SCRA) provides a number of protections for military personnel and their families when it comes to private and federal student loans. While these benefits aim to alleviate the burden servicemembers face when paying back their educational debts, a new report from the Consumer Financial Protection Bureau shows that many student loan servicers continuously fail to uphold their end of the SCRA requirements.
The report [PDF] is based on around 1,300 complaints submitted by servicemembers since 2012 and outlines the numerous challenges they and their families have encountered when trying to work with student loan servicers to obtain protections and benefits afforded by SCRA.
Protections provided under SCRA include an interest rate cap for men and women in uniform who acquire federal student loan debt before they went on active duty, special loan deferment programs and loan forgiveness for certain federal loans for public service. Additionally, some private student loan issuers advertise loan discharges, deferments and other benefits for military families.
The report found that despite these requirements, many military members and their families continue to face setbacks when they seek to exercise military protections.
According to the report the most common complaints involved servicers’ continued mistakes handling servicemembers’ student loan repayments that ultimately resulted in improper denials of legal benefits, negative credit reporting, and shoddy follow-through on legal protections for military families; as well as failure to provide co-signer discharges in the event of a borrower’s death.
In many instances, servicemembers tell the CFPB that their student loan servicer has failed to process SCRA related requests in a timely manner or didn’t clearly provide information about the application process and its requirements.
One complaint details a servicemember’s attempt to get his loan servicer to comply with the SCRA.
“My last communication with them was three days ago during which I was told I’d be receiving a document via email. As of this complaint I have yet to receive it,” he writes. “I can’t continue to fight this when my attention should be on matters that will literally involve life or death decisions.”
Others report that servicers unfairly sent their loans to collections due to the company’s own errors.
While SCRA provides military deferment options to some active-duty servicemembers, allowing them to postpone monthly student loan payments, the report found that many servicers failed to process complete requests.
As a result, borrowers found themselves in delinquency, default and the target of debt collection operations.
“The Bureau has received complaints from servicemembers who believed they had successfully enrolled in a deferment plan, only to return home to discover that their servicer had failed to defer the loan, which was instead put in default and sent to collections,” the report states.
Perhaps some of the most frustrating experiences servicemembers reported to the CFPB involved attempts to invoke discharge protections related to disabled veterans and the families of deceased military members.
Under federal law, veterans with a service-connected disability can seek federal student loan discharge if they received a 100% disability rating from the Department of Veterans Affairs. Additionally, federal law requires that federal student loans be discharged upon the death of a borrower.
However, these protections don’t always translate to the private student loan realm. In fact, private lenders are not required to offer either a discharge based on disability or death, unless detailed in the initial student loan contract.
Still, servicemember complaints regarding these issues weren’t just limited to the private student loan sector. In some cases when a loan discharge was processed, servicemembers saw their credit scores plummet as a result of servicers improperly reporting the loan as defaulted instead of discharged.
As for private student loan discharges, parents of deceased borrowers reported disgust and dismay with servicers after unsuccessful attempts to discharge debts they co-signed for their child.
In many cases, when a private student loan borrower dies, the debt is passed on to their co-signer, typically a parent.
Inherited student loan debt has become an issue for parents across the country in recent years. With the average student now graduating with more than $28,000 in loans, families unsuspectingly taking over that debt can face undue financial hardship.
Such was the case for several military families reporting issues to the CFPB.
“We heard from military families who requested student loans to be forgiven following the death of their child,” the report states. “Borrowers noted that the process of requesting loan forgiveness was not transparent, varied depending on their servicer or the owner of their loan and, when loan forgiveness was denied, that the criteria used for this decision was never disclosed.”
According to the CFPB, the issues detailed in its latest report make it clear that servicemembers continue to struggle to obtain the rights they have earned.
“Our deployed servicemembers should be able to focus on their military mission and spend precious free time talking with loved ones, not wrangling over problems with student loan servicers,” Richard Cordray, CFPB director, said in a statement.
While the CFPB doesn’t make any recommendations in its report, the Bureau does note that unlike other consumer finance products such as mortgages, there are no comprehensive statutory or regulatory framework that provides uniform standards for the servicing of all student loans.
CFPB Report Finds Servicemembers Continue To Face Roadblocks From Student Loan Servicers [Consumer Financial Protection Bureau]