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This new policy could save military members tens of millions of dollars on their student loans

Service members are entitled to a 0% interest rates while they’re in combat zones and other dangerous situations. Read More...

Over the past several years members of the military subject to hostile fire and other dangerous situations have overpaid at least $100 million on their student loans. The federal government quietly announced a policy this week that advocates hope will bring that number close to zero in the coming years.

The Department of Defense announced a change in policy this week that will allow the agency to work more closely with the Department of Education to make sure eligible service members get the student loan benefits they’re entitled to under law.

“Frankly it’s overdue,” said Mike Saunders, the director of military and consumer policy at Veterans Education Success, which works to advance higher education success for veterans and service members. “They have rights. And this is a really good first step.”

‘Your mind should be on surviving and making sure the people underneath you survive not on your student loan balance or the interest rate you’re getting charged on it.’

— Mike Saunders, director of military and consumer policy at Veterans Education Success

Members of the military with student loans are entitled to several protections under the law meant to help them manage their debt while serving their country. But they’ve struggled to access these protections. A combination of student loan company malfeasance, a lack of awareness of the protections and service members’ not having enough time to fill out the required paperwork is to blame, advocates say.

This week’s announcement could help service members access one of their guaranteed protections more easily. Members of the military who are receiving imminent danger pay or hostile fire pay — essentially a higher salary for serving in dangerous situations — are entitled to have their student loan interest rate set at zero during that period.

But the Consumer Financial Protection Bureau estimated that despite the perk, eligible service members were still paying interest on their student debt — to the tune of $100 million over roughly seven years. At the time, Seth Frotman, then the student loan ombudsman at the CFPB, noted that eligible service members likely weren’t getting enough information about the benefit from their loan servicers. In addition, given their more urgent concerns, managing student loans may not be top of mind for deployed troops, which is why automating the benefit is so important, advocates say.

“Your mind should be on surviving and making sure the people underneath you survive not on your student loan balance or the interest rate you’re getting charged on it,” Saunders said.

For years, Sen. Elizabeth Warren, a Massachusetts Democrat and a candidate for president and Sen. Patty Murray, a Washington Democrat, have been urging the departments of Defense and Education to automate this process. This week’s announcement marks the beginning of a public comment period on the change. If all goes according to plan, it should take effect this summer.

“Hundreds if not thousands of military borrowers eligible for 0% interest student loans were denied them because of bureaucratic red tape,” Warren said in a statement. “I was glad to see the Defense Department propose an agreement with the Education Department to ensure that military student loan borrowers receive the benefits they are owed under the law. I’d also like to see service members and veterans receive refunds for interest they never owed, but paid anyway.”

It’s unclear whether the Department of Education will apply the benefit retroactively. The agency didn’t immediately respond to a request for comment. The benefit only applies to loans made on or after October 1, 2008.

The change comes after years of concern from Warren, the CFPB and others over the challenges service members face accessing the student loan protections to which they’re entitled.

In 2014, the Department of Education directed the student loan companies it hires to work with borrowers to ensure service members automatically received access to a 6% interest rate cap. Until then, members of the military were entitled to the cap under law, but evidence indicates they had trouble accessing it.

That announcement came after the Justice Department reached an agreement with student loan servicer Navient to settle claims the company didn’t provide service members access to this protection. As part of the settlement, the company agreed to pay nearly 78,000 service members roughly $60 million.

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