Report: Troops face hassles with student loans, despite law

WASHINGTON (AP) — A government regulator says military personnel are still being hassled over their student loans despite the federal laws and programs put in place to protect them, and officials worry it could signal a broader problem in the $1.2 trillion student debt market.

In a report released Tuesday, the Consumer Financial Protection Bureau said it has received more than 1,300 complaints from military borrowers since 2012. Most of the problems stem from military personnel trying to defer loan payments or cap their interest rates while on active duty or after being disabled, as is allowed under the law. But many military personnel are getting denied or ignored by companies that handle their loans, the CFPB found.

The findings appear to contradict a recent review by the Education Department that found that four of the nation’s biggest loan servicers — Navient, Great Lakes, PHEAA and Nelnet — complied with a law aimed at protecting military personnel in the “vast majority of cases” between 2009 and 2014.

“Today’s report demonstrates that student loan servicers still need to do more to improve practices that are hurting military families,” said Holly Petraeus, assistant director for service member affairs at the CFPB, in a phone call with reporters.

Dorie Nolt, a spokeswoman at the Education Department, said the department has tried to get rid of any “additional red tape” to manage student loans, including eliminating the requirement that service members submit paperwork to prove active-duty status. Instead, loan servicers must check a Defense Department database.

While the CFPB said there are cases in which loan servicers aren’t checking that database, the Education Department said some 141,000 personnel have received the benefit.

“We continue to work with our servicers to ensure they are treating all borrowers fairly, but especially the men and women defending our country,” she wrote in an email.

Federal law offers extensive education benefits to people who joined the military after the 9/11 terrorist attacks. In general, if a person completes three years of service, four years at a public university are free or the student can receive about $20,000 a year at a private school. But the recession prompted many people with existing student debt to enlist. The law entitles these military personnel to reduce the interest rate or temporarily stop making monthly payments if they are deployed.

With federal and private loans, separate companies “service” agreements by processing monthly payments and helping borrowers with repayment options.

In the latest report, the Consumer Financial Protection Bureau echoed concerns by consumer advocates and the Justice Department that these loan servicers make it unnecessarily difficult for service members to find relief. In many cases, they are either denied for no reason or encounter so many obstacles that they give up or spend deployments repeatedly submitting paperwork.

The Justice Department announced in May that nearly 78,000 service members would get reimbursed under a $60 million compensation settlement with Navient, formerly part of Sallie Mae, because they had been charged excess interest on student loans.

When asked about the discrepancy among the CFPB findings, the Justice Department settlement and the Education Department’s May report that found little wrongdoing, Petraeus said, “I’ll simply say that we were very pleased to see the Department of Justice get millions of dollars for service members across all loan portfolios.”

CFPB’s student loan ombudsman, Seth Frotman, told reporters that he worries that problems facing military families are indicative of broader issues in the market that are “driving America’s growing loan default problem.”

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