Using the law to save money

  • Published
  • By 1st Lt. R. Scott Adams
  • 3rd Wing Legal Office
ELMENDORF AIR FORCE BASE, Alaska --  Recent developments in federal legislation have led to substantial financial benefits to military members in their private transactions. 

The law changed as a result of a congressional desire to look "with a friendly eye on those who dropped their affairs to answer their country's call." Two specific laws are beneficial and misunderstood. They are the Servicemember's Civil Relief Act, passed in 2003, and the College Cost Reduction and Access Act, passed in 2007. 

Young Airmen often come into the legal office holding a credit card bill they k now they can't pay. Because of foolish spending decisions before entering the Air Force, they are now paying 30 percent annual interest on $7,000 of principal. The Airman believes something might possibly be done to change his situation, but he's not sure what to do. That's where SCRA steps in to save the day. 

SCRA has been around for a while and most military members seem to know it exists, but few have a correct understanding of how it may benefit their own situation. Most of SCRA's provisions only apply when servicemembers become involved in civil litigation. For example, active-duty members, using SCRA, can put off all lawsuits against them until after they complete their active-duty service commitment. 

Outside of civil litigation, SCRA gives an incredible gift to active-duty members. The maximum interest rate on all pre-service debt of an active-duty member, from any creditor, incurred before a servicemember enters active duty is limited to 6 percent interest during the entire duration of the member's active-duty service. There is no requirement for deployment or other extraordinary service. The provision is also applied retroactively and, therefore, can be requested at any time during the service commitment and all financial benefits will be realized as though it were requested on the first day of active-duty service. 

The law does state that in order for SCRA to apply in such situations the interest must materially affect the member's service; however, the burden is on the creditor to prove lack of material affect in order to avoid reducing the interest rate if the creditor claims the member's service is not materially affected. Understandably, few creditors attempt to show lack of material affect and instead will automatically reduce the interest rate upon written request. 

Servicemembers may take advantage of this provision by sending a written request to the creditor to retroactively reduce the rate in accordance with SCRA. Along with the request the servicemember must attach evidence showing their first date of active-duty. The 3rd Wing legal office, located on the third floor of the People Center can assist all servicemembers in sending such requests. 

Second is the CCRAA, which applies to all federal student loans, held by persons working in the "public sector" which includes all active-duty members. Although the act is nearly 120 pages and contains provisions on a variety of higher education concerns, military members will benefit primarily from three specific provisions: 

-- CCRAA allows active-duty military members to defer repayment of federal student loans for up to three years. There is some talk about extending that deferment period, but it's now limited to 36 months. 

-- A new repayment plan was established by CCRAA allowing members to enter an income contingent repayment plan. The plan, like the rest of the law, is excessively complex. In most cases; however, the plan would reduce a servicemembers payments to 20 percent of the amount by which the member's adjusted gross income exceeds the poverty line. As an example, if an individual's AGI is $35,000 and the individual has three dependents, his poverty line is $20,650. Thus the difference between AGI and the poverty line is $14,350. Repayment then would be 20 percent of that number, or $2,870 annually, $240 monthly. 

-- Perhaps most importantly, CCRAA forgives all outstanding federal direct loans after 120 monthly payments have been made under a qualifying payment plan. The income contingent repayment plan described above is a qualifying payment plan, but the extended 30 year plan is not. Any military-member who has made 120 monthly payments under a qualifying plan and still has outstanding federal loans can simply wash away the entire amount of remaining debt. 

These provisions will help active-duty members take advantage of recent federal legislation and, in many cases, allow them to save a great deal of money.