The Military's War on Debt

In May 1985, federal agents arrested a 47-year-old retired Navy chief warrant officer on charges that he had spent the better part of two decades spying and providing top secret U.S. documents to the Soviet Union. It was a headline story for weeks and one of the last major spy cases of the Cold War era.

Details emerged that the man, John Anthony Walker, Jr., had provided codes for more than 200,000 encrypted naval messages to the KGB and organized a spy ring in what was considered by many to be one of the most damaging cases of espionage in the United States.

What caused a 10-year veteran of the U.S. Navy to become a spy? According to the FBI, Walker's motivations were strictly financial. In 1966, he had taken out a large loan to open a bar in South Carolina, but the bar was a failure. Mounting debt and the financial pressures of having to provide for a wife and four children are what motivated him to drive four hours from his duty station in Norfolk, Va. to the Soviet Embassy in Washington, D.C. For the next 18 years, Walker provided the KGB with classified documents in exchange for a weekly salary ranging from $500 to $1,000.

Twenty-four years later, the case highlights the reason why the Department of Defense continues to fight to protect its military personnel from accumulating unmanageable debt.

Matters of National Security

"When you're entrusting an individual with classified information, any sort of weakness that can be exploited by our adversaries to try and garner that information, like finances, is a factor that needs to be considered," Air Force Lt. Col. David Silverman, commander of the 21st Force Support Squadron, told FRONTLINE.

In 2008, the Navy reported that financial issues accounted for roughly 80 percent of security clearance revocations and denials -- approximately 1,500 sailors out of 330,000 active-duty Navy personnel. Cpt. Mark Patton, chief of staff for the Navy Installations Command, told FRONTLINE that security clearance revocations seriously impact a unit's mission readiness. When one service member is unable to deploy because he or she cannot obtain a security clearance, he explained, the military is often forced to deploy another service member sooner than expected or extend a deployment in order to fill that void. "Any time the nation is at war, any issue that affects your operational readiness and prevents a service member from carrying out his duties and responsibilities is a significant issue," Patton said.

A 2005 study commissioned by the Department of Defense showed that the U.S. military, excluding the Army, revoked 2,654 clearances that year due to financial problems, up from 284 in 2002, the year before the invasion of Iraq. During that four-year period, more than 6,300 troops from the Navy, Air Force and Marines lost their clearances because of financial troubles. (Figures were not available for the Army, the largest branch of the military.)

Retired Navy commander David Julian, the director of personal finance for the Defense Department, told FRONTLINE that financial problems could affect a service member's performance during missions. "If we've got a service member who's deployed, potentially in harm's way, they've got to be thinking about the important tasks at hand," Julian said. "They can't be thinking about their personal finances at home."

Money Management Skills

Like most Americans in their late teens or early 20s, new recruits have received little financial education before entering the military. Members of the armed forces earn more money during a deployment -- from hazard pay, tax-free income and separation pay -- and military financial counselors from bases across the country report that many of these troops return home with little understanding on how to manage it, often finding themselves in financial danger.

Since 1994, the military has mandated financial literacy programs for troops. "Long before the current economic crisis, DoD has valued the financial education of service members and family members, [and] provided them access to resources and programs," Julian said. "When the current economic crisis hit, we were able to fall back on those controls we already had in place to help our service members be financially ready."

Betty Geren, who oversees financial education for soldiers and families at Fort Campbell, Ky., home of the 101st Airborne Division, said her department provides mandatory financial education for all first-term soldiers. Staff also provide one-on-one counseling, pull CarFax and credit reports, and assess if a soldier qualifies for a low-interest or no-interest loan. Through a debt liquidation program, the department can also negotiate lower monthly payments and interest rates for a soldier in severe financial trouble. "I think we're better educating them when they first get here," said Geren, who has taught financial education for more than 15 years. "And I see more soldiers coming in to be proactive about their finances."

The Military Lending Act and Other Provisions

Congress has also played a part in protecting the financial security of the nation's forces. When senior military officials recognized that one of the biggest obstacles to the financial security of its troops was the proliferation of payday lenders -- small short-term loan centers that come with extraordinary high interest rates -- which popped up near bases in the last decade, Congress took action.

In 2007, lawmakers passed the Military Lending Act, which put an interest rate cap of 36 percent on loans made to service members and their dependents. It requires lenders to disclose the terms of the loan information in writing with a clear description of the payment obligations, the annual percentage rate and fees associated with the loan. The act also prohibits lenders from rolling over debt from one loan to another and from using a personal check or vehicle title as collateral for the loan. Since the act was implemented, it has effectively banned payday lenders from capitalizing on a service member's debt.

The Military Lending Act is not the only provision in place to assist members of the armed forces, Julian said. Since the Civil War, the government has passed several laws designed to protect the rights and property of service members at war. A 1940 bill included a provision that caps all interest rates on debt accrued prior to active duty service at 6 percent. The bill's protections were expanded further in 2003, when it was renamed the Servicemember's Civil Relief Act.

Even with established educational and support programs, Julian said the next step is to expand and improve the financial services for military personnel. "If we can get our service members to understand the right way to do things financially and have the awareness of the programs that are out there," he said, "then that'll help solve 90 percent of the problem."

Linsay Rousseau Burnett is a student at the Graduate School of Journalism at the University of California, Berkeley. Her work has appeared on ABC's Nightline, World News with Charles Gibson, Good Morning America, ABC Blotter Web site, Los Angeles Times and San Francisco Chronicle. She has worked as an associate producer and production assistant for several FRONTLINE documentaries. She spent nearly four years in the U.S. Army as a public affairs sergeant with the 1st Brigade Combat Team, 101st Airborne Division and was deployed to Iraq for one year.

Dan Hirst is an investigative reporter and producer. He has reported from all over the world and before joining FRONTLINE was an executive producer at ABC Radio National in his native Australia. He is the field producer of The Card Game -- the third FRONTLINE he has contributed to.