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Military personnel still face hassles with student loans, despite law, report says

A government regular says military personnel are still being hassled over student loans despite federal laws and programs put in place to protect them, and officials worried it could signal a broader problem in the $1.2 trillion debt market.

The Consumer Financial Protection Bureau said in a report Tuesday it has received more than 1,300 complaints from military borrowers since 2012. Most of the complaints stem from military personnel trying to defer loan payments or cap their interest rates while on active duty or after being disabled, as is allowed under law. However, the CFPB found many military personnel are getting denied or ignored by companies that handle their loan.

"Today's report demonstrates that student loan servicers still need to do more to improve practices that are hurting military families," said Holly Petraeus, assistant director for service member affairs at the CFPB, in a phone call with reporters.

Dorie Nolt, a spokeswoman at the Education Department, said it has tried to get rid of any “addition red tape” to manage student loans, including eliminating the requirement that service members must submit paperwork to prove active-duty status. Instead, loan servicers must check a Defense Department database.

While the agency said there are cases which loan servicers aren’t checking the database, the Education Department said some 141,000 personnel have received the benefit.

"We continue to work with our servicers to ensure they are treating all borrowers fairly, but especially the men and women defending our country," she wrote in an email.

Federal law offers extensive education benefits to people who joined the military after 9/11. In general, if a person completes three years of service, four years at a public school are free or the student can receive $20,000 a year at a private school.

But the recession prompted many people with existing student debt to enlist. The law entitles these military personnel to reduce the interest rate or temporarily stop making monthly payments if they are deployed.

With federal and private loans, separate companies "service" agreements by processing monthly payments and helping borrowers with repayment options.

In the latest report, the Consumer Financial Protection Bureau echoed concerns by consumer advocates and the Justice Department that these loan servicers make it unnecessarily difficult for service members to find relief. In many cases, they are either denied for no reason or encounter so many obstacles that they give up or spend deployments repeatedly submitting paperwork.

The Department of Justice announced in May that nearly 78,000 service members would get reimbursed under a $60 million compensation settlement with Navient, formerly part of Sallie Mae, because they had been charged excess interest on student loans.

When asked about the discrepancy among the CFPB findings, the Justice Department settlement and the Education Department's May report that found little wrongdoing, Petraeus said, "I'll simply say that we were very pleased to see the Department of Justice get millions of dollars for service members across all loan portfolios."

CFPB's student loan ombudsman, Seth Frotman, told reporters that he worries that problems facing military families are indicative of broader issues in the market that are "driving America's growing loan default problem."

The Associated Press contributed to this report