Setting the record straight on SCRA

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A major change occurred nearly two years ago that gave our troops easy and automatic access to reduced interest rates on their student loans. Two years later, however, the rhetoric around the events that led to this change continues to paint a distorted picture that could actually encourage disengagement by the very student borrowers whom advocates want to help. It’s time to set the record straight.

In 2014, Navient agreed to a settlement with the Department of Justice (DOJ) under the Servicemembers Civil Relief Act (SCRA). SCRA postpones or suspends certain financial obligations for military personnel in order to relieve pressure on their families and permit them to fully devote themselves to duty. For example, the law provides a 6 percent interest rate cap on student loans, but requires military personnel to apply for this relief, in writing, along with a copy of their orders. This documentation requirement has been the point of much confusion and misinformation.

The language in the Servicemembers Civil Relief Act is straightforward:

SCRA Statute: Servicemembers Civil Relief Act, 50 U.S.C. app. § 527: “the servicemember shall provide to the creditor written notice and a copy of the military orders calling the servicemember to military service.”

Here is the regulation published by the U.S. Department of Education (ED):

ED Requirements: “upon a loan holder’s receipt of a written request from a borrower and a copy of the borrower’s military orders, the maximum interest rate … on FFEL or Direct Loan program loans made prior to the borrower entering active duty status is six percent while the borrower is on active duty status.”

The guidance requiring two documents, a copy of military orders and a written request for the SCRA benefit, was so clear that every major federal student loan servicer, including Navient, had it posted on its website (Exhibit 1). In addition to ED, other government agencies advised consumers of the same (Exhibit 2, 3).

Exhibit 1: 2014 servicer websites, accessed May 2014.
Exhibit 2: CFPB website, accessed March 11, 2016
Exhibit 3: Military One Source website, accessed March 11, 2016:

Often, this documentation requirement created a difficult burden for service members. In 2011, we joined with other servicers to formally ask ED to allow a simpler process. We were told “no.”

Despite the clear statutory language and the written requirements from the Department of Education, DOJ staked out its own position. It did not believe the service member should be required to provide both documents.

The Department of Justice insisted that Navient adhere to this new standard, held that standard only to Navient, and left us with no choice but to be sued or settle and turn the page.

This new standard was clearly different from existing ED regulation. In fact, in order to implement the terms of the settlement, the Department of Education issued Navient a waiver to allow us to depart from ED’s requirements. The recent Office of the Inspector General report also agreed that the requirements between DOJ and ED were different.

Navient avoided a protracted legal battle with the United States government by agreeing to a settlement with the DOJ. As we explained to the Inspector General, we agreed to the settlement because we would rather spend money on service members than a cadre of lawyers and accountants in any prolonging of this dispute.

There is good news for service members that came out of this process. Our agreement with the DOJ was the impetus to resolve the differences between the DOJ and ED and led to new guidance for all servicers to follow. Today, military personnel no longer have to submit paperwork to obtain SCRA benefits on their student loans, unlike other consumer credit products. Instead, student loan servicers cross reference a Department of Defense (DOD) database and automatically apply the benefit.

Service members have easier access to the benefits they deserve, an outcome we should all applaud. It’s unfortunate that it took this extraordinary legal approach to create a better solution for service members — a solution that had been proposed by servicers several years earlier.

More can still be done to simplify service member access to other benefits. Among other reforms, we have advocated for a streamlined approach to help the military personnel who serve in combat zones and, thus, qualify for a zero percent interest rate on certain student loans. Inter-agency cooperation by the ED, DOD, and the Internal Revenue Service can create easier access to this benefit for troops. Student loan servicers cannot fix this data gap, but we can implement the solution.

Unnecessary complexity in the student loan program is not limited to service member benefits. Further reform efforts to benefit all student loan borrowers should focus on simplifying repayment options, improving understanding among families at the “point of purchase,” creating downward pressure on rising tuition, and encouraging borrowers to engage with their servicers on their loans. Instead, well-intentioned advocates are finding it easier to criticize servicers trying to help the very students they are concerned about.

Navient and other federal student loan servicers don’t set the price of college, they don’t set interest rates, they don’t interact with students until after the loan is made, and they don’t set the repayment options available after graduation. Servicers administer the plans available to student borrowers and record payments sent to the Department of Education.

At Navient, we understand the challenges student borrowers face given the incredible complexity of the federal loan program. Our expertise and outreach helps our customers navigate this complexity to find the solution that best meets their financial needs. As a result, our borrowers are 38 percent less likely to default compared to those serviced by others. We are proud of this outstanding result and remain committed to producing that success.

Jack Remondi is president and CEO of Navient, based in Wilmington, Del., which services student loans for 12 million customers.

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