Stateside Legal: A Servicemember’s Guide to Student Loan Interest Rates

ATTENTION: Many servicemembers now qualify to have their federal student loan interest rates reduced! Read more below.

The Higher Education Opportunity Act of 2008

Privately financed student loans have always been subject to the interest rate cap provision of the Servicemembers Civil Relief Act (SCRA).

Since August 14, 2008, the Higher Education Opportunity Act has also made it possible for servicemembers to use the SCRA to have their interest rate reduced to six (6) percent on federal student loans that were taken prior to their entry into active duty. If you meet the conditions for a reduced rate, the reduced interest rate only applies during the period of military service.

How Do I Know If I Qualify?

To figure out if you qualify you will need to know two things:
1. When you took out the loan; and
2. When you entered active duty.

Only loans that were taken out prior to your entering active duty will qualify. Also, the new rule on federal student loans only applies to your active duty service after August 14, 2008.

In addition, the SCRA only allows you to have your interest rates reduced when your military service is “materially affecting” your ability to pay (such as a reduced income as a result of military service).

Therefore, you qualify to have the interest rates reduced on your student loans IF:
1. You took out the loan before entering active duty.
2. You are currently on active duty.
3. Your military service is materially affecting your ability to pay the higher interest rate.

If all of these conditions are met, your lender must lower your interest rate to six (6) percent, and apply all of the past interest you have paid over six (6) percent, as far back as August 14, 2008, to the balance of your loan.

What Do I Need To Do To Get My Interest Rate Reduced?

If you think you qualify to have your interest rates lowered, you should send a letter to your lender telling them that you qualify and would like to have your interest reduced. Go here to create your Interest Rate Reduction Letter. When sending a letter, you also need to send a copy of your orders showing your activation date. Be sure to sign and date your letter and keep a copy of the signed letter you sent for your own files.

Upon receiving your letter, your lender should reduce your interest rate. However, if you encounter any problems, you should seek Legal Assistance.

Can I Still Get My Interest Reduced If I Already Got Out Of The Military?

No. The SRCA is only available to active duty servicemembers. It is designed to prevent financial troubles from interfering with a servicemember’s wartime readiness.

Do I Qualify To Have Any Other Interest Rates Reduced As A Servicemember?

Yes. The Servicemembers Civil Relief Act allows you to have the interest lowered on a variety of loans. For more information about the Servicemember Civil Relief Act go here. To see the other automated forms we offer for helping you to assert you rights under the SCRA, go here.

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