New legislation, titled the Servicemember Higher Education Protection Act (the “Bill”), was introduced recently by Senator Kay Hagan (D-NC). The Bill includes several provisions that expand protections under the Servicemembers Civil Relief Act (SCRA) with respect to student loans.
- The Bill would amend the SCRA to expand the available interest rate limitation for student loans, aligning the protection with that currently applied only to mortgage obligations. Accordingly, the 6 percent limitation would be available for student loans both during the period of military service, and one year thereafter.
- The Bill would also amend the SCRA to expand the 6 percent interest rate cap to cover an obligation incurred during military service for the purpose of consolidating or refinancing one or more student loans that were incurred prior to military service.
- To help implement the foregoing changes, a definition of “student loan” would be added, which includes a federal student loan made, insured or guaranteed under title IV of the Higher Education Act, and a private student loan as defined in section 140(a) of the Truth in Lending Act.
- The process for invoking the 6 percent interest rate cap for certain federal student loans would be streamlined. The Higher Education Act would be amended such that information submitted by the Department of Defense (DoD) to the Department of Education (ED), that a borrower is or has been or is being called to military service, would constitute the required written notice and copy of military orders for the purpose of triggering the interest rate limitation.
- The Bill would require the ED, in consultation with the CFPB, to create a simplified disclosure and enrollment form for borrowers who are performing eligible military service. The disclosure must include information on benefits available under the Higher Education Act and the SCRA, and an enrollment form that a borrower may use to invoke: (i) protections available under the SCRA for certain federal student loans; and (ii) other benefits available under the Higher Education Act to borrowers performing eligible military service. The submission of this enrollment form, to the ED, would also constitute the written notice, but apparently not the copy of military orders, required to invoke the 6 percent interest rate limitation.
The remaining sections of the Bill would amend the Higher Education Act, to enhance protections for servicemembers with student loan obligations.
- The ED would be required to create a revised and searchable website with information about all federal and state student financial assistance programs available to servicemembers.
- The National Student Loan Data System would be augmented to include information on the military and veteran status of borrowers.
- The ED would be required to appoint a Military and Veteran Point of Contact within the office of the Student Loan Ombudsman, to help ensure borrowers receive the benefits to which they are entitled.
- The DoD, Department of Veterans Affairs, and ED would be required to ensure that loans are automatically discharged for a servicemember or veteran who has been assigned a disability rating of 100 percent.
- The ED would be required to work with the IRS and DoD to ensure that student loan borrowers in a hostile fire zone receive their benefits under current law so that interest does not accrue for eligible military borrowers.
This legislation comes on the heels of the recent $60 million settlement between Department of Justice, the ED, and a major student loan servicer, which is cited in the Bill’s press release in discussing the need for legislation. As reported previously on this blog, the settlement greatly expands the trigger for borrowers to invoke the SCRA’s 6 percent interest rate limitation. Somewhat surprisingly, the Bill does not appear to adopt any of those expanded triggers, although it would continue that expansion, though thankfully, through the legislative process. That said, President Obama’s subsequent announcement that he has directed the ED to reduce rates automatically for eligible borrowers, coming as it did, just days after the Bill was introduced, may greatly lessen the likelihood of its ever being enacted into law.
Further information on the Bill can be found here.