Military issues with defaulted student loans [classic article]

As first seen in Military Money magazine

Student loans – more specifically, defaulting on them – can result in lots of problems for service members and their families. The Wall Street Journal cited Dept. of Education figures of an increase to 6.9% for defaults on federally guaranteed student loans – and that’s before 2009 figures are in. According to the federal publication, “Federal Student Loans: Learn the Basics and Manage Your Debt”, Americans received $92 billion in loans in 2006. The student loan debt clock at http://www.finaid.org  shows outstanding student loan debt that is yet uncollected is approaching the $1 trillion mark. With the governmental budget concerns of late, it’s no surprise that it would like to rein in the defaults. Some of the tools it has at its disposal are more “stick” than “carrot”, which should be of concern to any service member who may be in danger of defaulting. Certainly, one of the main reasons people join the military is for the financial benefits. Indeed, when you go to the live recruiting chat on http://www.navy.com , one of the categories you may check before speaking to someone is if you are “interested in financial stability”. However, it sometimes is a catch-22 as to being able to join the military and serve in certain slots if you are already financially instable.

Defaulting on loans can affect service members in several direct ways. A portion of your wages may be garnished. You may not be able to obtain a professional license that you need to do your work: this can be medical, legal, pilots’, even a barber’s license. Many civilian jobs require licenses, including funeral directors, real estate brokers, detectives, engineers. Each state differs slightly in its licensing requirements, so check your state of residence to see if your profession could be affected by defaulting on student loans. If you need a license to work in your profession, know that it can be cancelled, revoked, or simply not renewed for failing to pay back loans. Working without a required license can result in criminal penalties. That means jail. A defaulted student loan may jeopardize employment with the government or if you are already employed, it may be cause for termination.

The Defense Office of Hearings and Appeals maintains a website that lists many cases of people who defaulted on their student loans and were subsequently denied security clearances. In “Case No. 09-04198.h1”, decided July 30, 2010, it was held that security clearance be denied for a person who was paying off delinquent student loans, but on an involuntary basis: “Applicant has accumulated numerous delinquent debts, including a substantial child support arrearage and delinquent student loans. He is paying child support by automatic payroll deduction. His student loans are being collected by involuntary deductions from his pay. He has not resolved numerous medical bills, a school textbook debt, and several cell phone bills. Clearance is denied.” The administrators clearly made their point that in this case, it was not merely being delinquent but also that the applicant didn’t take personal responsibility for paying off debts: someone (the system) had to garnish the money.

Conversely, working hard to pay back student loans under adverse conditions has been rewarded. In Case No. 09-00660.h1 it was held, “Applicant is 30 years old and has worked for a federal contractor since 2008. He began experiencing financial problems when he was underemployed and unemployed. When two of his debts became delinquent, he contacted a debt consolidation company to set up a repayment plan. He has settled and paid one of the debts and is making consistent monthly payments to settle the other. He has no other delinquent debts and has consistently paid his student loan, even when he experienced a decrease in income. Applicant mitigated the security concerns under Guideline F, Financial Considerations. Clearance is granted.”

Don’t even think about hiding the fact of your defaulted or delinquent student loans from the military; according the United States Code, Title 10, Subtitle A, Part II, Chapter 47, “misrepresenting” or “deliberately concealing” a known “material fact” can result in a Fraudulent Enlistment or Appointment (in the case of the service academies) charge. The punishment can be harsh: while it used to be specified as being “Dishonorable discharge, forfeiture of all pay and allowances, and confinement for 2 years,” according to the Army’s official site, it now “shall be as a court-martial shall direct”. That can work either way: the leeway that the statute gives a military tribunal can make the sentence more lenient or more severe. To help reduce the problem, the Air Force started in 2008 to perform 100% credit checks on all applicants to ensure that they do not process anyone with debt issues unknowingly.

Paying off your debt is viewed as your personal problem, not the military’s. On the Army’s website, http://www.armydomain.com , a young man recently wrote in, expressing that he wanted to become a Warrant Officer. Standing in his way were “credit issues and a 30K loan.” His situation was certainly sympathetic: the loan was for school and the credit issues came about from “domestic issues” involving his parents. The company he had been working for closed several stores, including his. The man came up with what he thought was a clever solution: potentially using a signing bonus to pay off his debts. However, the Army’s MSG Glenn shot down that idea with the precision they are famous for. “If the Army won’t allow you to contract for WOFT because of your debt I doubt if a possible bonus would do you any good. That would be after the fact with absolutely no assurance that you would actually pay it off before you shipped (and) not use it to buy something else.” According to the Navy Recruiting Command Public Affairs Office, it’s not just your own finances that you have to worry about – it’s your spouse’s, too. “Married applicants are more at risk of having debt and are therefore required to be screened by use of additional financial screening tools.”

Each branch of the service, its different divisions (such as the service academies), as well as individual MOS’s/AFSC’s have its own policies as to credit and defaulted loans. According to Christa L. D’Andrea, Chief, Public Affairs Air Force Recruiting Service, “Experience and history has shown us that if we allow potential applicants to enter the Air Force with excessive financial debt that they tend not to do as well in technical training. Additionally, they have additional financial burdens on them that an Airman’s salary cannot necessarily remedy without putting an additional financial strain on their current situation.” However, there are programs and counseling services available to active duty members who may be struggling financially after they have joined the Air Force. Programs such as the Air Force Assistance Fund can be of benefit to Airmen who have encountered some unexpected expenses/burdens while on active duty. Mr Angelo Haygood, deputy director of Air Force Recruiting Service operations notes that an applicant must have a debt-to-income ratio or below 40% of their projected AF rank. This applies to all duties, including officers. If an enlisted applicant requires an exception/waiver due to debt issue they are ineligible for entry into duties requiring a top secret clearance. Those applying for officer training would more than likely not be selected for basic officer training. The Navy, according to the Navy Recruiting Command Public Affairs Office, does not keep people from enlisting just because of credit or loan status. This is their policy: “Military members are expected to effectively manage their financial affairs without command involvement.  Should a service member’s indebtedness be brought to the command’s attention by creditors, the command with provide the member counseling in an attempt to aid the member in getting his/her debt current.  Individuals who are continually unable to resolve their financial matters after reasonable command involvement are subject to separation.” The lesson is to keep your debt under control for a future in the military and to check with each branch as to their policies for your particular situation.