LAW REVIEW 1114
Student Loans Are Now Subject to SCRA 6%
Interest Rate Cap
By Captain Samuel F. Wright, JAGC, USN
4.1—SCRA Right to Interest Rate Reduction upon
Q: I graduated
from college two years ago and was commissioned a Second Lieutenant in the Army
Reserve. I have a massive student debt,
but I am making good progress in paying it off.
I have an excellent job with a six-figure income, and I am making
maximum payments on the student debt.
But now I am being called to active duty, and I will suffer a
significant loss in income—my Army pay will be substantially less than my
I read with great interest your Law Review 112 (Jan.
2004), about section 527 of the Servicemembers Civil Relief Act (SCRA). Like the reservist you discussed in that
article, I can certainly say that my entry on active duty will materially
affect my ability to meet my financial obligations. I applied to the bank that services my
student loan to have the interest rate cut to 6% during my active duty
period. The loan officer told me that
the SCRA 6% interest rate cap does not apply to federally guaranteed student
loans. Is the loan officer correct?
A: Not any longer.
What the loan officer told you was correct until Aug.
14, 2008, but it is no longer
On Aug. 14, 2008, President Bush signed into law Public Law
110-315. Among other changes made by
that Public Law, it amended 20 U.S.C. 1078(d) to read: “No provision of any law of the United States
(other than this chapter and section 527
of the Appendix to title 50) … which limits the rate or amount of interest
payable on loans shall apply to a [federally guaranteed student] loan.” (Emphasis supplied.)
The purpose and effect of
this 2008 amendment was to make the SCRA 6% interest rate cap applicable to
student loans, just as it applies to credit cards, automobile loans, and other
financial obligations. This is a very
important change. For many junior
officers in the National Guard and Reserve, the student loan debt will be the
most significant financial obligation for which the member will need relief
upon call to active duty.
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