Yesterday, President Obama signed an Executive Order that will automatically apply a 6% interest rate cap to eligible federal student loan borrowers under the Servicemembers Civil Relief Act without the need for additional paperwork.
In October 2012, the Consumer Financial Protection Bureau published The Next Front, a report that identified troubling trends regarding student loan borrowers having trouble accessing their SCRA rights. We shared the consumer complaints featured in the report with the Department of Justice, which led to the recent settlement against Sallie Mae, the nation’s largest student loan servicer. The settlement required Sallie Mae to proactively determine which of its borrowers were eligible for the 6% interest rate reduction, and apply the rate cap without the need for borrowers to submit a request or military orders.
Yesterday’s Executive Order extends this relief to all federal student loan borrowers, not just those with loans serviced by Sallie Mae.
If you are a servicemember and you have a federal student loan that you took out before you entered the military, you are no longer required to ask your student loan servicer and to send in your orders for an interest rate reduction. Your interest rate reduction will be applied automatically.
Borrowers with private student loans should still contact their student loan servicer to inquire how to obtain their SCRA benefits. In most cases, you will need to send a written request and include a copy of the orders calling you onto military service.
If you interact with any servicemembers with student loans, you may wish to share these additional resources:
1) Submit a complaint about your student loan servicer. Consumers may wish to file a complaint if they are concerned their account was illegally handled. Visit consumerfinance.gov/complaint or call 855-411-CFPB (2372).
2) Share the action guide for servicemembers with student loans. Since this new guidance has yet to take effect, we advise servicemembers interested in accessing their benefits and protections to check out our action guide. We will continue to update the guide as this new guidance takes effect.
For more information, please visit consumerfinance.gov/servicemembers and consumerfinance.gov/students.
Related links: http://www.whitehouse.gov/the-press-office/2014/06/09/presidential-memorandum-federal-student-loan-repayments