Student Loan Interest Elimination Act

Starting July 1, 2026, the Student Loan Interest Elimination Act would set the interest rate to 0% on all new federal student loans — including unsubsidized Stafford, PLUS, and consolidation loans — and automatically convert all existing federal Direct Loans held by the government to 0% interest without requiring borrowers to do anything. Borrowers with older Federal Family Education Loans (FFEL) or health-professions loans not held by the government could refinance into a new zero-interest federal consolidation loan, preserving their existing repayment term and access to forgiveness programs. To replace the lost interest revenue, the bill creates the Education Affordability Trust Fund, which collects all loan repayments and invests them in bonds (municipal, Treasury, and corporate); investment returns above a set threshold are then used to cover the cost of running the loan program instead of relying on annual congressional appropriations. A 6-member, bipartisan board — appointed by the President and confirmed by the Senate, with no lobbyists or former members of Congress allowed — would govern the Trust Fund, with full financial disclosures, independent annual audits, and annual public reports to Congress. The bill also eliminates subsidized Stafford Loans (which currently waive interest during school and grace periods) after June 30, 2026, but compensates by raising unsubsidized borrowing limits by the same amount students would have received in subsidized loans, plus annual inflation adjustments starting in 2027. If Trust Fund investment returns exceed program costs, the Secretary of Education may use surplus funds to award supplemental Pell Grants to current recipients — proportional to their existing award — or to fund competitive college-improvement grants (between $600,000 and $1 million) to institutions that keep tuition increases under 3% or have endowments below $100 million.