Servicemember Loan Cap: 6% Interest Rate Limit Set for Student Loan Refinancing During Active Duty

The Servicemember Student Loan Affordability Act of 2025 is a straightforward piece of legislation designed to give active-duty military personnel a needed break on their student loans. Specifically, it amends the Servicemembers Civil Relief Act (SCRA) to cap the interest rate at 6% annually on certain loans taken out during military service. But here’s the crucial detail: this cap only applies if the new loan is used to specifically consolidate or refinance student loans that the servicemember took out before they started their military service.

The 6% Safety Net for Student Debt

Think of this as closing a potential loophole. The existing SCRA already caps interest rates at 6% on debt incurred before military service. This bill extends that protection to new debt that is incurred during service, provided that new debt is purely for cleaning up old student loans. For example, if a newly enlisted soldier has a $40,000 private student loan at 12% interest, and they refinance it while on active duty, the lender must cap that new refinancing loan at 6% starting the day the new loan is issued (Sec. 2).

Who Benefits from the Fine Print?

This is a win for financial stability. Active-duty servicemembers often face unique challenges, including frequent moves and periods of deployment, which make managing high-interest consumer debt difficult. By capping the rate on refinanced student loans, the bill ensures that servicemembers who are trying to be financially responsible—by consolidating or refinancing high-rate debt—aren't penalized by the high cost of borrowing. The bill covers both federal student loans (Title IV) and private education loans, meaning the protection is broad (Sec. 2).

The Catch: Keep Your Debts Separate

There is a critical restriction in the bill that servicemembers need to know about: the 6% cap only applies if the new loan is exclusively for consolidating or refinancing those specific pre-service student loans. If a servicemember tries to roll that student debt together with, say, a high-interest credit card balance or a car loan into a single refinancing package, the entire loan is disqualified from the 6% cap. This means servicemembers must keep their student loan refinancing separate from other debt consolidation to receive this significant interest rate relief. While it’s slightly less convenient than a single catch-all loan, the savings from cutting interest rates in half could easily be worth the extra paperwork.