ASA DIX LEGAL BRIEF
A PREVENTIVE LAW SERVICE OF THE JOINT READINESS CENTER LEGAL SECTION
UNITED STATES ARMY SUPPORT ACTIVITY DIX
KEEPING YOU INFORMED ON YOUR PERSONAL LEGAL NEEDS
SERVICEMEMBERS CIVIL RELIEF ACT
(SCRA)
Reduction of Interest Rate to 6%
Servicemembers may be able to reduce the interest rate on their pre-service credit cards, car loans,
mortgages, installment contracts, interest charged by the IRS, secured debts under a confirmed bankruptcy plan,
and other debts or obligations to 6% per year under the Servicemembers Civil Relief Act (SCRA), 50 U.S.C.
App. Section 527. However, federally insured guaranteed student loans are not eligible for this rate reduction
under the Higher Education Act of 1965, 20 U.S.C.S. Section 1078(d). The SCRA specifically includes debt
owed by the Servicemember individually or jointly with a spouse. Debt jointly owed by a Servicemember and
individuals other than a spouse has also been eligible for the interest rate reduction. It does not matter which
one of you initially incurred the debt. The important issue is that both of you are legally obligated to repay the
debt, for example both names are on the loan repayment documents.
The 6% interest rate cap only applies to debts that were made prior to entering active military service
and it remains in effect only during the period of your active military service. Interest in excess of 6% must be
forgiven, not just merely postponed, and the amount of the monthly payment must be reduced to reflect the
actual interest rate being charged. Under the SCRA, interest includes service charges, renewal charges, fees, or
any other charges (except bona fide insurance) pertaining to the debt.
The interest rate is not automatically reduced to 6% once Servicemembers enter active military service.
In order to obtain the interest rate reduction, Servicemembers must provide written notice and a copy of their
military orders (and any orders extending such military service) to their creditor(s) no later than 180 days after
termination or release from active military service. Although the SCRA permits this 180 day grace period, it is
advisable to provide written notice to creditors once you receive military orders. Once you provide proper
notice, the creditor must retroactively reduce the interest rate to 6% for the period of active service. However,
the SCRA permits a creditor to file for relief from the reduced interest rate in the appropriate court of law if the
creditor believes that the Servicemember’s ability to pay the higher interest rate was not materially affected by
his or her military service. The court may grant a creditor relief from reducing its interest rate if it is determined
that the Servicemember’s call to active duty did not materially affect his or ability to pay the higher rate. An
example where the Servicemember’s ability to pay the higher interest rate is not materially affected by military
service is when the Servicemember’s employer pays the difference between the military pay and the prior
salary.
See 6% percent reduction of interest rate letter below.
ASA DIX LEGAL BRIEF is one of a series of Information Papers from the ASA Dix Joint Readiness Legal Section containing general legal
information on topics which Legal Assistance Attorneys frequently advise on. Information provided is general in nature and does not constitute
formal, specific legal advice. Consult an Attorney for specific legal advice for your particular situation. You may schedule a legal assistance
appointment by calling the Joint Base Legal Assistance Division at 609-754-2010 Created By: Nancy Holman May 2010.
