SCRA 6% interest rate reduction for school loans
By Capt. Benjamin Hernandez-Stern , 129th Rescue Wing Legal Office
/ Published November 15, 2011
MOFFETT FEDERAL AIRFIELD, Calif. -- The Servicemembers Civil Relief Act, formerly known as the Soldiers' and Sailors' Civil Relief Act, established in 2003, is a federal law that provides certain protections for military members as they enter active duty or recently retired members are entitled to, allowing them to perform their military duties without the worry of circumstances similar, but not limited to, civil prosecution, foreclosure or eviction.
There have been a number of revisions to the SCRA that have updated and expanded the law's protections, to include the provision of the Act that allows Airmen to request a reduction in their educational loan's interest rate upon entry into active duty or when mobilized.
Prior to it's' amendments in 2008, the Act's 6 percent rate reduction did not apply to education loans. All Airmen activated since August 2008, may take advantage of this new provision.
Specifically, the SCRA covers members of the Army, Navy, Air Force, Marine Corps and Coast Guard on active duty under Title 10 orders.Generally, members of the Army National Guard and Air National Guard called to active duty as authorized by the President or the Secretary of Defense for 30 consecutive days are also covered with this Act.
The reduction in a loan's interest rate applies to obligations that were incurred before joining active duty or mobilization. Creditors, such as finance companies, banks or educational loan companies, must reduce the loan's interest rate down to 6 percent, unless the creditor can prove in court that the Airman's ability to pay was not materially affected by military service. Courts have concluded the interest reduction also includes affiliated services charges.
The SCRA amendments specifically call for the interest in excess of 6 percent to be forgiven. Once the Airman puts the creditor on notice that the member qualifies for the rate reduction, the creditor must reduce the interest rate from the date the servicemember was called to active duty.
SCRA also covers issues such as rental agreements, security deposits, prepaid rent, eviction, installment contracts, credit card interest rates, mortgage interest rates, mortgage foreclosure, civil judicial proceedings, automobile leases, life insurance, health insurance and income tax payments.
Contact the judge advocate office at 650-603-9153 for assistance regarding SCRA. Since this revision to the Act is relatively new, some creditors may not be aware of its protections.
The material in this handout represents general legal principles. The law is continually changing; although the information in the handout was current as of the date it was drafted, some provisions may have changed.