Get Out of Debt Guy

The Army Said They'd Pay Off My Student Loans and Didn't

Posted February 17

Question:

Dear Steve,

I was in the army. The army said they would pay back my student loans but did not. I did not have a federal loan it was a private loan.

I was in the army from 2006 to 2012. Then in the reserves from 2012 till 2015. I had a student loan from Sallie Mae. The army said sure will will pay it back. Sad Face for me they did not.

They would not because it is a private loan. The company that bought the loan sent me out a letter say hey if u can get 35000 dollars we will call your loan good. I am the only one in my house working. My husband is in school and we have two kids.

The loan balance as of right now is 90000+ I am going crazy trying to wrap my brain around what it is I need to do to get help. I started out wanting to be a chef then gave it up to join the Army.

I do not regret joining but when I did they were not able to help because of the private part. I live in a rural town in Tennessee now. Thanks in advance.

Kimberly

Answer:

Dear Kimberly,

I believe you are talking about the Army Loan Repayment Program. This program has some terrific benefits for those that qualify. Up to 33 1/3 percent of the outstanding principal balance can be paid off annually.

Even though these benefits are impressive, only loans that are not in default are eligible. The Army is clear when they say, “The U.S. Army does not assume an individual’s student loan; loan status is the individual’s responsibility. Enrollment in the LRP does not exempt Soldiers from their obligation to repay their loans”

Most, if not all, federal student loans qualify for this program. Loans that are not eligible include private loans, state funded loans, institution loans, equity loans, consolidated loans for someone else (wife, sister, brother, etc), parent loans incurred for someone other than the LRP participant, and USAA loans.

One issue to keep an eye on is that the big reimbursements for qualifying student loans is taxable income.

Payments are made directly to the lender. The first payment is not made until after the member has completed one year of service (assuming all initial entry training has been completed). The Army will only repay the remaining original unpaid principal, less taxes on qualifying loan(s). Interest (even if it has been re-capitalized into principal) will not be repaid. Additionally, payments made under the LRP are considered taxable income in the year(s) that payments are made.

The other big issue to watch for is not all soldiers are eligible. To be eligible you must be in one of the designated Military Occupational Specialties (MOS). Local Army recruiters maintain the changing list of qualifying MOS categories.

To be eligible for this awesome program you must meet the following conditions:

  • Soldier must agree to a term of service of three years or more.
  • Soldier must decline enrollment in the Montgomery GI Bill in writing, using DD Form 2366.
  • Soldier must have LRP guaranteed in writing in the enlistment contract.
  • Soldier must be a non-prior service accession.
  • Soldier must have a high school diploma and a score of 50 or higher on the Armed Services Vocational Aptitude Battery (ASVAB).
  • Soldier must enlist in one of the critical MOSs that qualifies for the program (Local Army recruiters have the current list, which changes quarterly).

So it seems your student loan would not have been eligible to begin with if this was not written into your enlistment contract.

The Fact the current loan owner or servicer made you a $35,000 settlement offer on a $90,000+ loan balance is a fantastic offer if you can come up with the money to meet the offer.

A couple of places to look to borrow unsecured funds to take them up on the offer would be Prosper.com or LendingClub.com. Both have good rates for unsecured loans.

Of course this hinges on if you can afford to make the loan payments.

This article by Steve Rhode first appeared on Get Out of Debt Guy and was distributed by the Personal Finance Syndication Network.

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About this Blog:

Steve Rhode has had careers in opthalmology, real estate and as the head of a nonprofit debt counseling firm. On his blog, he offers hard-won, free advice about getting out of debt, consolidation and making the right choices as you manage your money.