Student Loan Forgiveness and Deferment

It’s easy to assume military members have no student loan debt. After all, aren’t veterans, currently serving military members and eligible Guard/Reserve members all taking full advantage of VA education benefits such as the Post 9/11 GI Bill and the Forever GI Bill changes that have greatly enhanced the program?

Not everyone who joins the military comes to the service in need of a degree. Some already have plenty of college experience, undergrad and graduate degrees, or certificates. When you join the military with student loan debt or incur student loan debt while serving, it’s good to know your military student loan forgiveness options.

Not all who owe money on their higher education will qualify for loan forgiveness. But for the many who are eligible for some form of assistance, it can be quite helpful to receive loan deferment or other support. This is especially true for those transitioning out of military service and back into the civilian sector.

Note: The Biden-Harris Administration announced a three-part student debt relief plan on August 24, 2022 that includes loan forgiveness of up to $20,000, a final extension of the student loan repayment pause (ending December 31, 2022), and steps to make the student loan system more manageable for current and future borrowers.

To be notified when the process has officially opened, sign up for updates at the Department of Education subscription page.

Types of Student Loan Forgiveness and Related Options

There are many programs allowing military members to apply to defer student loans or have them forgiven. In all cases, it will be necessary to contact the loan servicer to determine what application requirements are needed at the time.

State law, lender requirements and other rules may apply. None of the programs listed here are automatic. You must apply for each one individually and supporting documentation is a condition of acceptance into each program.

Student Loan Payment Suspension By Agency Order, Legislation, And/Or Executive Order

In December 2021, President Joe Biden issued an executive order to extend student loan forbearance until May 2022. That forbearance began in March 2020 in response to the global coronavirus pandemic, but it did not begin there.

Student Loan Types Affected By The Executive Order

Before discussing the evolution of this executive order, it’s important to review who is affected by it. The following loan types are included in the order:

• Current direct loans not in default
• Direct loans which are in default status
• Defaulted and current FFEL Program loans*
• Defaulted and current Federal Perkins Loans
• Defaulted HEAL loans*

*Not all FFEL, HEAL or Perkins loans are owned by the government. Any student loan not owned by the government does not qualify in those instances. Some Perkins loans are owned by the school attended and are not included in the executive order.

All adjustments to student loan accounts are automatic, and StudentAid.gov warns borrowers, “You do not have to pay to get 0% interest or suspended payments for your student loans.”

The official site for StudentAid.gov warns some third-party companies may attempt to charge you a fee for repayment assistance during COVID-19, but these companies are not affiliated with the government and should be avoided.

The Road To The Executive Order

The road to the executive order was a winding one, starting with a directive from the Secretary of Education sent to the office of Student Federal Aid to provide loan forbearance on federal student loans in March 2020.

That directive included a suspension of loan payments for the duration of the forbearance. A loan forbearance program is not a cancellation of a student loan, but rather a moratorium on collecting payments.

Those payments under forbearance are not forgiven–that would be something called loan forgiveness or loan modification. The full amount of the loan is still owed, though the lender and borrower may have to renegotiate part of the loan or come to some understanding of how the loan is to be amortized.

But loan forbearance, in this particular case, includes not only suspended loan payments but also suspended collection action on federal loans that have gone into default as well as setting the interest rate on the loan to 0% for a limited time.

Later that March, Congress passed the CARES Act, also known as the Coronavirus Aid, Relief, and Economic Security Act which codified those relief measures and established a formal expiration date for them originally ending Sept. 30, 2020.

In August, 2020, then-President Donald Trump ordered an extension of the deadline, requesting that loan payments continue to be suspended, collections to remain halted, and interest be kept at zero percent on federal student loans until Dec. 31, 2020. That measure was again extended in December 2020 until Jan. 31, 2021.

Which leads us to the executive order issued by President Joe Biden, which extended the original expiration date of the CARES Act student loan relief measures until Sept. 30, 2021.

Public Service Loan Forgiveness (PSLF)

The program known as Federal Student Aid “began accepting and reviewing applications from borrowers seeking loan forgiveness” for Direct Loans via the Public Service Loan Forgiveness (PSLF) Program which was created in 2007.

Direct loans are those that qualifying students and parents borrow directly from the U.S. Department of Education. Military members would be eligible to apply since any government employee is considered. The one exception is civilians working at for-profit government contractor agencies.

Only qualifying student loans will be forgiven under this program. The government’s official site for student aid defines a qualifying loan as, “any non-defaulted loan you received under the William D. Ford Federal Direct Loan (Direct Loan) Program.”

Servicemembers Civil Relief Act (SCRA) Interest Rate Cap

A 2008 law known as the Higher Education Opportunity Act amended existing rules to include federally guaranteed student loans as a protected debt under the SCRA. Before 2008, federal student loans were not included as part of SCRA protections.

That means any Direct Loan prior to 2008 is not covered. But for those with student loans originated after the passage of the Higher Education Opportunity Act, those loans have an interest rate cap at 6% for the duration of military service. All interest above and beyond that six percent must be forgiven.

The catch is that this cap is not automatic. It must be applied for in writing and supporting documentation must be submitted including military orders to show the duration of service, etc.

The cap is not for any time except for the duration of military service; any interest paid prior to that is not covered under SCRA.

Military Service Deferment

Military service deferment permits a student loan borrower to defer or postpone loan repayment “during certain periods of active duty” and immediately after active duty. Training periods, military service schooling and similar circumstances do not count. Serving away from the borrower’s normal duty station does count, as does wartime service.

To apply for this program, contact your loan servicer and be prepared to submit documentation. This includes paperwork showing your completed military service, a Post-Active Duty Student Deferment Request form, a statement from a commander or First Individual (First Sergeant, Sergeant Major, Master Chief, etc.) or personnel officer along with the completed borrower section of deferment form. You may need to provide military orders, discharge paperwork, etc. as required.

Student Loan Deferments after Active Duty

Military members may apply to defer Federal loans and certain private loans following departure from active duty when returning to school. You will need to contact your lender to see what application requirements apply. But in general you will need a copy of military orders, discharge paperwork, and a written statement from a commander or personnel officer.

0% Student Loan Interest during Hostile Duty

You may apply to pay no interest on your qualifying student loans for up to 60 months if you are assigned to a “hostile area.” Service members must be receiving special duty pay to qualify for this zero-interest student loan option. This is not offered for private student loans, but check with your loan servicer to see if any such program is offered independently by that financial institution.

Heroes Act Waiver

For those on active duty, some documentation requirements are waived for those using student loan benefits. Service members who utilize income-driven student loan payment plans (see below) can apply to have their monthly payment amounts continue without the required updates based on income, family size, or other variables. The Heroes Act also suspends “satisfactory academic progress” requirements for qualifying servicemembers.

This is generally offered for those serving in times of war or other military operations. It is also offered to those who serve in times of a national emergency. The Heroes Act waiver does not include loan forgiveness, but the elimination of the regular reporting requirement for those serving in combat zones and other areas can be a major benefit.

The Heroes Act also permits students withdrawing from college because of required military service to keep Title IV funds that were overpaid thanks to a repayment waiver. Students who were threatened with collection activity on defaulted education loans can apply to have such action halted (for a limited time) as a result of qualifying military service.

Income-Driven Student Loan Repayment Plans with The Potential for Loan Forgiveness

Service members and veterans who qualify can apply to have their student loan repayment programs based on income. This is an option for federal loans only, though it is a very good idea to contact your student loan servicer to see if a similar program is offered to veterans independently.

Veterans with federal student loans may qualify for a low payment or no-payment option “with the possibility of forgiveness of the remaining balance in 20-25 years.” Application procedures may vary depending on the lender.

Veterans Total and Permanent Disability Discharge Student Loan Forgiveness.

Veterans with a service-connected disability may be able to have student loans forgiven. In general, this is intended for federal student loans, but some private student loans may also qualify depending on the loan and circumstances. Qualifying veterans will have a VA disability rating and receive, or be eligible to receive, VA disability compensation.

Veterans must complete a Total and Permanent Disability Request Form to qualify. Contact your student loan servicer to learn more about specific requirements to apply with that lender. Read more about this here.

Military Service Loan Repayment Programs

While not all military members qualify for student loan repayment by the Department of Defense, for those who do there is a huge benefit.

These programs are often offered in critically staffed career fields. It is not uncommon for doctors and other medical professionals to have their student debt taken care of by the Department of Defense in exchange for a minimum military service commitment (which will vary depending on the program, the branch of military service, etc.).

One excellent example of this type of program is the one administered by the Air Force for those who work in the Judge Advocate General (JAG) corps. According to the Air Force official site, “eligible JAGs can apply for up to $65,000 toward student loan repayment. Payments are made directly to a qualified lender over a three-year period, starting after you have completed the first year of service as a JAG officer.”

Other Types of Student Loan Forgiveness and Forbearance

Depending on circumstances, the type of student loans you have and other variables, it may be possible to qualify for additional consideration for student loan forgiveness or forbearance. Private loans vary and will have requirements unique to that program. Contact your loan servicer for information on how to apply for any private student loan program your servicer may offer.

For federal loans, students may qualify for a student loan deferment under the following circumstances:

• While enrolled at least half-time at an eligible college or career school, and if you received a Direct PLUS Loan or FFEL PLUS Loan as a graduate or professional student, for an additional six months after you are no longer enrolled at least half-time;
• While enrolled in an approved graduate fellowship program;
• Being enrolled in an approved rehabilitation training program for the disabled;
• During periods of unemployment or a lack of full-time employment up to three years;
• While serving on active duty military service in connection with a war, military operation, or national emergency;
• While on active duty military service in connection with a war, military operation, or national emergency, for the 13-month period following the conclusion of that service, or until you return to college or career school half-time or more.

For student loan forbearance, a General Forbearance option allows your lender to decide whether to grant your request when motivated by the following circumstances:

• Financial difficulties
• Medical expenses
• Changes in employment
• Other issues the lender is willing to accept

Such forbearance is allowed only for 12 months at a time. Some programs only permit a “cumulative forbearance” of a certain number of months or years, while others do not. Lender standards and requirements will be an important part of the equation when such arrangements are made.

Depending on the type of loan and the agreement you make with the lender, you may or may not be charged interest during the forbearance period.

There is also a category known as a Mandatory Forbearance (applicable for 12 months at a time) which applies to the following circumstances:

• Serving in a medical or dental internship or residency program when the applicant meets certain requirements including holding a Direct Loan or FFEL loan (no other loans qualify under this circumstance)
• The total amount of the monthly payment for all student loans equals 20 percent or more of your total monthly gross income, for up to three years on Direct Loans, FFEL Program loans, and Perkins Loans;
• The borrower participates in a teaching program that qualifies for teacher loan forgiveness on Direct Loans and FFEL Program loans only;
• The borrower is eligible for partial repayment of your loans under the U.S. Department of Defense Student Loan Repayment Program for Direct Loans and FFEL Program loans only;
• Member of the National Guard who are activated, but not considered eligible for a military deferment for Direct Loans and FFEL Program loans.

Student Loan Refinance

While not a form of forgiveness, refinancing your student loans could save you thousands of dollars, or lower your monthly payment for your student loans. To refinance student loan debt, the existing education loan will be replaced with a new loan through a private lender, such as Splash Financial, SoFi, LendKey, or a local bank or credit union.

As with any loan product, it pays to shop around and compare interest rates and terms from multiple student loan refinance lenders. Below are some options worth considering.