WASHINGTON (8/28/14)--There are new procedures for Federal Family Education Loan (FFEL) lenders to determine if borrowers are eligible for benefits under the Servicemembers Civil Relief Act (SCRA), the U.S. Department of Education announced this week.
According to FFEL data, 17 credit unions are in the top 100 financial institutions holding FFEL loans. Those 17 credit unions had outstanding FFEL program balances of $1.562 billion as of Sept. 30, 2013.
Under the new procedures set by the Department of Education, FFEL lenders are now authorized and encouraged to use the Defense Manpower Data Center (DMDC) database to identify borrowers who are eligible for the interest-rate limitation provided military servicemembers under the SCRA and to grant that benefit. This identification can be made without a specific request from the borrower.
According to the Department of Education, it has been determined that the DMDC database provides "sufficient supporting documentation" of an individual's eligibility for the SCRA interest rate limitation.
Once a borrower's status and service dates have been confirmed using the DMDC, the loan servicer may use the information, but must retain that information in the borrower's file. When the loan servicer applies the SCRA's interest rate limitation to a borrower's account, it must notify the borrower that the interest rate on the loan has been changed.
FFEL lenders that use the DMDC information to confirm a borrower status and maintain the supporting information will not be subject to any program liabilities if any information provided by the DMDC is found to be incorrect. The loan servicer does not need to confirm the information provided by the DMDC.
In a letter to FFEL lenders sent Wednesday, the Department of Education reminded them of two limitations on the application of the SCRA interest rate: