Student Loan Interest Elimination Act
- Sponsor
- Rep. Courtney, Joe [D-CT-2]
- Committees
- Budget Committee (primary)
- Last action
- Mar 24, 2026
Bottom line
The bill aims to significantly reduce the financial burden of higher education by eliminating interest on federal student loans and establishing a new trust fund to manage repayments and potentially expand grant aid.
What it actually does
This bill amends the Higher Education Act of 1965 to eliminate interest on all federal student loans, both existing and new, starting July 1, 2026. It establishes an Education Affordability Trust Fund to receive all federal student loan repayments, invest these funds, and use the returns to cover administrative costs of the federal student loan program. Any excess funds from the Trust Fund can be used to provide supplemental Federal Pell Grants and support a Postsecondary Student Success Program. The bill also increases annual and aggregate loan limits for federal student loans and mandates inflation adjustments for these limits.
Proponents argue
Proponents argue that eliminating interest on student loans would dramatically reduce the financial burden on millions of Americans, making higher education more accessible and affordable. They contend that this measure would free up significant disposable income for borrowers, stimulating economic growth and allowing individuals to invest in homes, start businesses, or save for retirement sooner. Furthermore, the establishment of a dedicated trust fund for repayments and investments is seen as a sustainable mechanism to manage federal student aid without relying solely on annual appropriations.
Opponents contend
Opponents might argue that eliminating interest on all federal student loans would represent a massive cost to federal taxpayers, as the government would forgo billions in revenue. They may also raise concerns about the complexity and potential risks associated with establishing and managing a new Education Affordability Trust Fund, particularly regarding its investment strategy and long-term solvency. Critics could also contend that such a broad benefit might disproportionately aid higher-income borrowers who would have repaid their loans regardless, and that it could incentivize institutions to raise tuition costs.
The bill is moderately complex, requiring careful reading to understand the new trust fund structure and the various loan modification and refinancing rules. The estimated reading time is sufficient for an informed reader to grasp its core provisions.
Title I, Sec. 102(a)
Automatic Interest Elimination for Existing Federal Direct Loans
This provision mandates that the Secretary of Education establish procedures to automatically modify the terms of all eligible Federal Direct Loans disbursed before July 1, 2026, so that no interest accrues on these loans starting on that date. Borrowers are given the option to opt out of this modification at any time.
Supporters argue
Supporters argue that this automatic modification provides immediate and substantial relief to millions of borrowers, directly addressing the burden of existing student loan debt. The opt-out feature ensures borrower choice while making the default option the most beneficial for most.
Critics contend
Critics may argue that automatically eliminating interest on existing loans is an expensive federal giveaway that benefits all borrowers indiscriminately, including those who are financially stable and capable of repayment, without targeting relief to those most in need.
Tradeoffs
The provision balances the goal of broad debt relief for existing borrowers with the significant fiscal cost to the federal government from lost interest revenue.
Title I, Sec. 102(b), (d)
Refinancing for Other Federal Student Loans
This provision requires the Secretary of Education to establish procedures allowing borrowers of eligible non-Federal direct loans (such as certain FFEL Program loans not held by the Department of Education, Perkins Loans not held by the Secretary, and specific Public Health Service Act loans) to refinance them into Federal Direct Consolidation Loans. These refinanced loans will also accrue 0% interest, will not incur origination fees, and will retain the original repayment term. Crucially, prior qualifying payments made on the original loans will count towards income-driven repayment and loan forgiveness programs, calculated using a weighted factor.
Title II, Sec. 201
0% Interest for New Federal Student Loans
This section amends the Higher Education Act to set the applicable interest rate to 0% for all new Federal Direct Unsubsidized Stafford Loans, Federal Direct PLUS Loans, and Federal Direct Consolidation Loans for which the first disbursement is made or the application is received on or after July 1, 2026. This means all future federal student loans will be interest-free.
Title II, Sec. 202
Termination of Interest Subsidized Loans and Increased Unsubsidized Limits
This provision terminates the authority to make new Federal Direct Stafford Loans (which are interest-subsidized for eligible students) after June 30, 2026. For any period of instruction beginning on or after July 1, 2026, students will no longer be eligible for these subsidized loans. To compensate, the maximum annual amount of Federal Direct Unsubsidized Stafford Loans a student may borrow will be increased by an amount equal to what they would have received as a subsidized loan.
Title II, Sec. 203
Inflation Adjustment for Annual and Aggregate Loan Limits
This provision mandates that the annual and aggregate loan limits for Federal Direct Loans (specified in paragraphs (4) and (6) of section 455(a) of the Higher Education Act) shall be increased annually, starting July 1, 2027. The increase will be equal to the estimated percentage change in the Consumer Price Index for the most recent calendar year, ensuring that loan limits keep pace with inflation.
Title III, Sec. 303
Establishment of the Education Affordability Trust Fund
This section establishes the 'Education Affordability Trust Fund' within the Department of Education. It will be governed by a 6-member Board, appointed by the President with Senate consent, with specific experience requirements (financial investments, rural/disenfranchised groups). The Board members have staggered 6-year terms, political affiliation limits, and strict conflict of interest rules (divestment or blind trust). The Board is responsible for appointing independent fund managers and overseeing the Trust Fund's investments.
Title III, Sec. 302, 303(d)
Trust Fund Investment and Use of Assets
All federal student loan repayments are deposited into the Education Affordability Trust Fund. The fund managers, appointed by the Board, are mandated to invest these assets primarily in bonds (municipal, Treasury, federal agency, international, corporate), with specific rating, diversification, and country-based limitations. The returns on investment that exceed the amounts repaid on loans are transferred to the Secretary of Education to cover the administrative costs of making federal direct loans. The amount transferred depends on the Trust Fund's assets under management, with 100% of excess returns transferred if assets are over $500 million, and decreasing percentages at lower asset levels.
Title III, Sec. 301, 302(c)
Use of Excess Trust Fund Amounts for Pell Grants and Student Success Programs
If the investment returns from the Trust Fund exceed the amounts needed to cover the Department of Education's administrative costs for student loans, the Secretary of Education may elect to use these 'excess amounts' for two purposes. First, to carry out a Supplemental Federal Pell Grant Program, awarding additional Pell Grants to students that can exceed the total maximum Federal Pell Grant available and do not count towards duration limits. Second, for the Postsecondary Student Success Program, with new eligibility criteria for institutions (e.g., tuition increase limits, endowment size) and grant amounts between $600,000 and $1,000,000.
The definition of 'eligible non-Federal direct loan' includes specific loans made under subparts I and II of part A of title VII and part E of title VIII of the Public Health Service Act, but for some, only if the borrower has completed specific service, practice, training, or employment conditions.
Sec. 102(d)(2)
Why it matters:This is standard legislative practice for defining the scope of applicability for specific programs, ensuring that only those who meet certain prior obligations can access the refinancing benefits.
Case for: Supporters would argue that including these specific Public Health Service Act loans, with their associated service requirements, ensures that professionals who committed to public service can also benefit from 0% interest refinancing, provided they fulfilled their initial obligations.
Case against: No specific opposition is typically raised against this technical inclusion, as it clarifies the scope of the program rather than introducing a new policy controversy.
Estimated impact: Extends refinancing benefits to a specific, smaller cohort of healthcare professionals who received federal loans under the Public Health Service Act and met service conditions.
Disqualifications for appointment to the Education Affordability Trust Fund Board include individuals registered as lobbyists and former Members of the House or Senate, or legislative branch employees, within 4 years of appointment.
Sec. 303(b)(3)
Why it matters:This is standard legislative practice for establishing ethics and conflict-of-interest rules for appointments to federal boards, ensuring independence and preventing undue influence.
Case for: Proponents would argue that these disqualifications are essential for ensuring the independence, integrity, and public trust in the Trust Fund Board. They prevent potential conflicts of interest and the perception of political influence over investment decisions.
Case against: No specific opposition is typically raised against such ethics provisions, as they are generally seen as good governance practices.
Estimated impact: Limits the pool of potential candidates for the Board, ensuring a focus on financial expertise and independence from lobbying or recent legislative roles.
The Trust Fund's investments must meet strict credit rating requirements (e.g., at least 80% rated A3/A- or higher, 40% rated Aaa/AAA or higher) and cannot invest in entities based in countries without diplomatic relations with the U.S., subject to U.S. sanctions, or on a Treasury sanctions list.
Sec. 303(d)(3)
Why it matters:This is standard practice for outlining the specific financial parameters and ethical guidelines for a federal investment fund, ensuring prudent management and alignment with national security/foreign policy.
Case for: Supporters would argue that these stringent investment requirements ensure the Trust Fund's financial stability and minimize risk, while also aligning its investments with U.S. foreign policy and national security interests by avoiding sanctioned entities or hostile nations.
Case against: Critics might argue that such strict investment criteria could limit the fund's ability to achieve optimal returns, potentially reducing the amount of excess funds available for Pell Grants or other programs. They might also contend that foreign policy considerations should not overly restrict a financial investment vehicle.
Estimated impact: Directs the investment strategy of potentially hundreds of billions of dollars, influencing bond markets and ensuring ethical/geopolitical alignment.