President Barack Obama signed an executive order Monday that will automatically apply a six percent interest rate cap to eligible federal student loan borrowers under the Servicemembers Civil Relief Act, SCRA, without the need for additional paperwork.
In October 2012, the Consumer Financial Protection Bureau published The Next Front, a report that identified troubling trends regarding student loan borrowers having trouble accessing their SCRA rights. The Consumer Financial Protection Bureau shared the consumer complaints featured in the report with the Department of Justice, which led to the recent settlement against Sallie Mae, the nation’s largest student loan servicer.
The settlement required Sallie Mae to proactively determine which of its borrowers were eligible for the six percent interest rate reduction, and apply the rate cap without the need for borrowers to submit a request or military orders.
Monday’s Executive Order extends this relief to all federal student loan borrowers, not just those with loans serviced by Sallie Mae.
Service members who have federal student loans they took out before they entered the military are no longer required to ask their student loan servicers and send in their orders for an interest rate reduction. The interest rate reduction will be applied automatically.
Borrowers with private student loans should still contact their student loan servicer to inquire how to obtain their SCRA benefits. In most cases, they will need to send a written request and include a copy of the orders calling them into military service.