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SCRA & Student Loans
by Mary Beth Guard
Guru BIOS
Question: I realize that, under the old SSCRA, §1078 of title 20 was interpreted to trump the interest rate cap on student loans. The newly enacted Servicemembers Civil Relief Act ("SCRA") does not make any reference to this. Does this section still trump the interest rate cap? By that, I mean are student loans still exempt from the maximum 6% interest provision?
Answer: In my view, even though the SCRA does not make a reference to it, 20 U.S.C. 1078 would still have a preemptive effect in that it deals specifically with a particular type of loan and its language states, in pertinent part:
(d) Usury laws inapplicable
No provision of any law of the United States (other than this chapter) or of any State (other than a statute applicable principally to such State's student loan insurance program) which limits the rate or amount of interest payable on loans shall apply to a loan -
(1) which bears interest (exclusive of any premium for insurance) on the unpaid principal balance at a rate not in excess of the rate specified in this part; and
(2 )which is insured
(i) by the United States under this part, or
(ii) by a guaranty agency under a program covered by an agreement made pursuant to subsection (b) of this section.
I do not believe the former version of the SSCRA explicitly referenced 20 U.S.C. 1078 either, and typically the rules of statutory construction indicate that specific controls over general. The SCRA deals generally with obligations of all types incurred preservice by military personnel. This statute deals narrowly with a particular type of loan, i.e. a student loan, and it specifically states that no other law which limits the rate or amount of interest payable on loans will apply to an insured or guaranteed student loan.
The original version appeared in the June 2004 edition of the Oklahoma Bankers Association Compliance Informer.
First published on BankersOnline.com 11/8/04
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