Options For Troops To Cut Student Loan Debt

What options do troops have to cut student loan debt? Half the battle is knowing your rights, while in other cases you should know some options are automatic while others must be applied for or requested directly.

The first place to start is to review the pertinent details of the Servicemembers Civil Relief Act or SCRA. Among the first things you will learn when reviewing the Act and its contents is that while on active duty, no lender can charge you more than six percent interest while you are on active duty.

Those serving in a hostile fire area are entitled to ZERO percent interest while there. Cutting your interest payments to six percent isn’t a total elimination of student loan debt, but it’s a very good start toward saving money on your monthly payments.

Best of all? SCRA protections in this area apply regardless of whether your lender is private or public. There’s a huge BUT coming…the interest rate reduction you are entitled to under SCRA is automatically applied IF you have a federal student loan. But private student loans do NOT come with an automatic interest rate deduction where applicable–you must request it in writing.

Wartime Student Loan Deferments

Those with qualifying military service during wartime, national emergency, or a military operation may have the option to request a student loan deferment. One caveat of this option? You must be serving at a duty station other than your own during the time of emergency or conflict. This rule applies to Active Duty, Guard, and Reserve members.

Perkins Loans

If you have a Perkins loan, you may have the option to have your student loan balance reduced for every qualifying year of military service in an “area of hostilities” IF you have served there for 12 months consecutively or more.

Student Loan Forgiveness For Public Service

Depending on the type of loans and degree you earn and how you apply your degree post-graduation, you may be eligible for Public Student Loan Forgiveness after having worked in a qualifying public service capacity for 10 years.

In past years (check with a tax professional to learn what this year’s tax laws are and how they apply here) those who have student loans forgiven under this program are not charged tax for the amount of loan forgiveness. The caveat? Only Federal direct student loans, and Direct Consolidation Loans qualify.

Student Loan Monthly Payment Caps

Those with direct federal loans and qualifying military service can apply to have their student loan payments capped at a certain percentage (ten percent at the time of this writing though that amount is always subject to change) of the borrower’s monthly income.

Some of these programs require a recent student loan, but the government’s Revised Pay As You Go program state the age of your student loan may not be an issue, and there are no income requirements under that specific plan.

Tax Breaks For Student Loan Interest

In past years, the IRS rulebook has permitted those who made student loan payments in the prior tax year to deduct the interest under qualifying circumstances. You will need to consult a tax professional about the current year’s rules and requirements.

In past tax years, the student loan interest deduction was available for those who paid $600 or more that year in federal student loan interest.

A special form (IRS Form 1098-E) was required for this purpose and may be required in the current tax year. You’ll need to ask a tax pro. In the past, the form was automatically sent to those who qualified, but never assume last year’s federal tax rules apply in the current year.

There’s an important factor here–some borrowers may receive a 1098-E even if they did not pay more than $600 (or the current year’s qualifying amount). This does NOT mean you qualify for the deduction. Those who do NOT receive the proper IRS form should contact their loan servicer to learn how much to report in student loan interest on their taxes.

You may or may not also qualify for certain state tax-level perks if you have qualifying military service, qualifying education, and post-graduation employment. Be sure to check your state government official site under the veterans’ affairs category or veterans benefits category to learn what your state tax options might be and remember that all the rules mentioned here about documentation, paperwork, and current tax code apply at the state level, too.

Don’t assume your tax breaks are automatic.

Other Options For Service Members To Cut Student Loan Debt

There are options for those who want to join the military, those who are already members but want to cross train into qualifying career fields, MOS, or ratings, etc. These options vary greatly depending on the branch of service, current mission requirements, funding, legislation, and DoD policy. The options include but are not limited to:

• The Army Student Loan Repayment Program for new Army recruits who are not considered “prior service.”
• The Army Reserve College Loan Repayment Program for Reservists in qualifying MOS categories.
• The Health Professions Loan Repayment Program is offered by both the Army and Navy as doctors, dentists, or other qualifying healthcare professionals (Active, Guard, and Reserve may all qualify depending on circumstances on active duty or in the Army Reserve.
• Air Force Judge Advocate General candidates may qualify for as much to $65,000 (the amount offered in years past–provided here as an example only) worth of student loan repayment assistance.
• Qualifying Navy service could earn you as much as $65,000 in student loan repayment assistance. Restrictions apply.

Applying For Student Loan Debt Relief

It’s never safe to assume that any benefit that results in your debt being cut will be automatically applied. The first step toward claiming any of the options you see here is to contact your loan servicer to request your SCRA rights, ask for loan forgiveness, etc.

You will need the cooperation of your lender in order to move forward with your request and even if your student loan debt reduction plan IS automatic (see above) you should contact your loan servicer to let them know, request more information, and inquire about other options that may be open to you as well.

You will need several documents to claim your student loan debt relief, reduction, deferment, etc. Your DD Form 214 Report of Discharge or the Guard/Reserve equivalent is required and you will need all pertinent information about your loan including any case numbers assigned, account numbers, copies (never originals) of your loan agreement, dates of graduation and other important details.

Don’t assume you can simply file the request without supporting documentation.

Remember that certain relief such as the Revised Pay As You Go plan may have specific rules about you student loan debt–such as seasoning periods where you must make a minimum amount of required payments before applying.

These programs may also have caveats for those considering loan consolidation before applying. The “clock” might start over if you consolidate your loans ahead of applying–be sure to ask what the consequences might be if you don’t know the rules about loan consolidation and loan forgiveness.

Joe Wallace is a 13-year veteran of the United States Air Force and a former reporter for Air Force Television News