They have 180 days to request the rate relief from the date of the end of their active duty. All relief is retro-active back to the beginning date of their active duty.
In this case, because they've waited 2 years since payoff of the loan, I would want documentation of their active duty status in order to verify the following:
1. If they were active in 2007 were they active at the time they obtained the loan? If so they are not entitled to the rate relief.
2. Is their request within 180 days of the end of their active duty.
3. The continuity of their active duty. They are only entitled to relief for the term of the active duty. If active duty was from 8/07 to 8/08 and then again from 8/09 to 8/10 then those two stretches are the only time they are entitled to the rate reduction.
If they are entitled to the rate reduction then you will have to make the appropriate refunds.
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The opinions expressed are mine and they are not to be taken as legal advice.