Borrowers with federal student loans would stop paying interest. Starting July 1, 2026, the Education Department would automatically set the interest rate to 0% on existing federal direct loans, and borrowers could opt out if they prefer. People with older bank-issued (FFEL), Perkins, or certain health-profession loans could refinance them into new federal consolidation loans at 0% interest, with no origination fees and no change to their payoff timeline. All new federal student loans issued on or after that date — unsubsidized Stafford, PLUS, and consolidation loans — would also carry 0% interest, while new subsidized Stafford loans (where the government covers interest during school) would end and be replaced by larger unsubsidized borrowing limits. Annual and total loan limits would rise with inflation each year beginning July 1, 2027. To pay for the program, the bill would route student-loan repayments into a new Education Affordability Trust Fund, run by a six-member presidentially appointed board that invests the money in bonds; investment earnings above repayments would fund the zero-interest loans, and any surplus could pay for extra Pell Grants and competitive grants of $600,000 to $1,000,000 to colleges that keep tuition increases under 3%. The board would face conflict-of-interest, ethics, audit, and public-reporting rules, and the Secretary could waive normal rulemaking steps to launch the program.
Average Household Impact
- Interest on existing federal student loans — Set to 0% starting July 1, 2026
- Interest on new federal student loans — Set to 0% for loans on or after July 1, 2026
- Origination fees on refinanced loans — Removed for the new consolidation loans
- Refinancing into federal loans — FFEL, Perkins, and health-profession loans now eligible
- Subsidized Stafford loans — Ended for new borrowers after June 30, 2026
- Unsubsidized Stafford loan limit — Raised to replace discontinued subsidized amounts
- Federal student loan limits — Indexed to inflation (CPI) starting July 1, 2027
- Pell Grant funding — Supplemental grants added from trust fund surplus
Transparency & Accountability
- Loan program reporting — Annual report to Congress on borrowers modified or refinanced
- Trust Fund audit — Annual independent audit reported to Congress and public
- Board ethics rules — Lobbyists and recent members of Congress barred from serving
- Board financial disclosure — Members and employees must file disclosure reports
- Negotiated rulemaking — Secretary may waive the public rulemaking process to implement
Congressional Summary
Student Loan Interest Elimination ActThis bill eliminates interest on existing and new federal student loans beginning on July 1, 2026. Specifically, for existing federal student loans, the bill directs the Department of Education (ED) to establish and implement procedures to (1) modify the terms of Federal Direct Loans so that beginning on July 1, 2026, no interest shall accrue on such a loan; and (2) allow a borrower to opt out of this loan modification.Additionally, ED must establish and implement procedures to (1) refinance eligible loans that are not Federal Direct Loans (e.g., privately held Federal Family Education Loans and Perkins Loans), and (2) allow a borrower to opt out of this loan refinancing. The bill outlines the terms and conditions of these refinanced loans, including by prohibiting ED from charging origination fees and specifying that no interest shall accrue on these loans.For new federal student loans made on or after July 1, 2026, the bill sets the applicable interest rate at 0%.The bill establishes the Education Affordability Trust Fund. ED must deposit all payments made on federal student loans into this trust fund. The Education Affordability Trust Fund Board, as established by this bill, must transfer the assets from investments of this trust fund to ED to pay for the administrative costs of carrying out federal student loan programs.The bill allows ED to use excess amounts of funds in the trust fund to carry out a Supplemental Pell Grant Program.
Details
- Congress
- 119th
- Chamber
- Senate
- Status
- summarized
- Action
- Introduced in Senate
- Action Date
- 2026-03-24
- Date Added
- 2026-06-08
- Source
- Congress.gov →
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