US military sounds alarm over mounting student loan debt

WASHINGTON (Reuters) - The military voiced concern on Thursday over mounting student loan debt owed by American troops, saying loan companies appeared to be taking advantage of U.S. forces - guiding them away from special protections they earned through service.

Some 41 percent of America’s armed forces are holding student debt, according to one recent survey, and Pentagon officials say financial troubles are among the top sources of anxiety among troops -- sometimes even topping war itself.

Defense Secretary Leon Panetta told reporters that the No. 1 reason troops lose security clearances was financial troubles, which include things like overwhelming debt for mortgages, credit cards and student loans.

“And that’s something that we absolutely now have to address,” Panetta said at a Pentagon press conference detailing a new report on student loan debt.

“Because of their sacrifice, it should be easier, not tougher for service members to be able to pay off their college debt,” he said.

The growing student loan burden in the military appears to partly reflect a trend in America generally. Two-thirds of U.S. college seniors who graduated in 2011 had student loan debt, with an average of $26,600 per borrower, according to a study released on Thursday by the California-based Institute for College Access and Success.

The Pentagon report cited a figure from 2008 showing that the amount of student debt for active-duty service members graduating from college in 2008 was $25,566.

But troops, unlike the general population, should benefit from laws meant to help them manage their student debt, including the Servicemembers Civil Relief Act (SCRA), which cuts interest rates to 6 percent during active duty service on debt incurred prior to service.

Instead, the report warned that troops confused by the complexities of their benefits through acts like SCRA were being guided into unfavorable debt repayment plans or refused their legal benefits.

“I’m concerned that the report that is being issued today warns of student loan companies that not only may confuse service members, but even violate the law in the approach that they take,” Panetta said.

Holly Petraeus, a top official with the U.S. Consumer Financial Protection Bureau who advocates for troops, noted documented cases of abusive mortgage lending practices against troops, resulting in more than 300 improper foreclosures.

“I think the problem may be greater with student loans than it was with mortgages,” Petraeus, wife of CIA Director David Petraeus, said, explaining that “many more young servicemembers enter active duty with student loans than with a mortgage.”

Reporting by Phil Stewart; Editing by David Gregorio