With Veterans Day coming up I thought it would be beneficial to give our service men and women information on some of the benefits available for paying back student loans, especially since there is a chance to save thousands of dollars. Some benefits apply to federal student loans, others to private student loans and some are available regardless of the type of student loan you have. Below are some things for servicemembers to consider when paying back student loans.
LOWER YOUR INTEREST RATE FOR ALL YOUR LOANS
Because of the Servicemember’s Civil Relief Act (SCRA), if you are currently serving on active duty, you are eligible to have your interest rate lowered to 6 percent on all student loans taken out prior to your active-duty military service. This benefit applies to both your federal and non-federal (private) student loans and is available for all servicemembers on active duty, regardless of where you serve.
To reduce your interest rate under the Servicemember’s Civil Relief Act (SCRA), contact your loan servicer and ask about this option directly. You will need to send a written request to your servicer plus a copy of your orders calling you to active duty. You can submit your request any time during your active-duty service or up to 180 days after leaving active duty, and the interest-rate-reduction must be applied retroactively for the whole period of active-duty service.
MANAGE YOUR FEDERAL STUDENT LOANS
IBR and PSLF are two of the best options to repay federal student loans.
Income-Based Repayment (IBR) ties the amount of your monthly payment to your income and family size.
Public Service Loan Forgiveness (PSLF) PSLF can forgive any remaining balance on federal student loans after you make 10 years of on-time qualified payments while working full-time in public service. Like active duty military service or service with the government or certain non-profit organizations.
If you think you may spend a decade or more in the military, or pursue a public-service job after leaving the military, it is important to enter into IBR as soon as possible because each payment you make under IBR counts as “qualifying monthly payments.” Making qualified monthly payments is important under PSLF because after you make 120 on-time qualified payments your loan balance can be forgiven.
To get started on IBR, contact your servicer. Check your servicer’s website to learn how to enroll. You will probably need to provide proof of your income to determine your payment. You should have a tax return or pay stub you can provide.
Some other options to consider when repaying student loans are Military Deferment and Perkins Loan Forgiveness
Military Deferment is available for federal student loans if you’re serving on active duty or if you’re in the National Guard either deployed, or full time and your service is during a time of war, military operation or national emergency. Remember, military deferment doesn’t make your loans go away. It can actually mean that you will owe more once you start to repay the loan because interest changes will continue to be applied even though payments are being deferred. Consider IBR first. To learn more about IBR check out the IBR calculator and IBR fact sheet for more information.
The last option when it comes to your federal student loans applies to borrowers with Perkins Loans. This type of loan, made directly by your school, is eligible for principal reduction if you serve in “an area of hostility” for 365 consecutive days. If so your loan will be reduced for each qualifying year and will be completely cancelled after five qualifying years (the five years don’t have to be continuous).
MANAGE YOUR PRIVATE STUDENT LOANS
Remember, IBR and PSLF are not available for private loans. It is important to manage these loans by paying what you can. Depending on the terms of your loan you may be able to postpone your payments through forbearance or deferment. This may offer short term relief but interest will continue to accrue and your debt will continue to grow. This should really only be done as a last resort because it will cost you much more in the long run. Ask your private loan servicer about interest-only payments instead of deferment or forbearance in order to stop you loan balance from growing while providing you with some short-term relief.
All in all just make sure you understand your options and get your loans under control before you fall into trouble. If you find yourself in trouble contact your Judge Advocate General for assistance. A JAG can help you with your SCRA request as well as make sure you meet all requirements. To find the JAG attorney nearest you, check out the Armed Forces Legal Assistance Locator.
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