Student Loan Interest Elimination Act
Sponsored By: Senator Peter Welch
Introduced
Summary
Creates a system of zero‑interest federal student loans and an Education Affordability Trust Fund to collect Title IV loan repayments and use earnings to run loan programs and boost Pell awards. This changes how loans are modified, refinanced, and funded starting in 2026.
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- Borrowers: Eligible Federal Direct loans stop accruing interest beginning July 1, 2026 and borrowers may opt out at any time. The bill lets people refinance non‑Federal loans into Federal Direct Consolidation Loans with no origination fees and sets special rules for counting past payments under income‑driven plans.
- Students and institutions: A Supplemental Federal Pell Grant program can use Trust Fund excesses to increase Pell awards and allow amounts above normal caps without counting toward Pell duration. It also creates a competitive Postsecondary Student Success grant program with awards of $600,000 to $1,000,000 for institutions that meet tuition or endowment criteria.
- Trust Fund and governance: All Title IV repayments are deposited into a newly created Education Affordability Trust Fund to pay loan administration and, if excess exists, fund supplemental Pell and student success grants. A six‑member board appoints fund managers who must follow strict investment, diversification, and reporting rules and prioritize shorter maturities for a decade.
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Bill Overview
Analyzed Economic Effects
5 provisions identified: 2 benefits, 1 costs, 2 mixed.
Zero interest for federal student loans
If enacted, Federal Direct loans would stop accruing interest starting July 1, 2026. The Department would modify eligible Direct loans to a 0% rate automatically, and borrowers could opt out at any time. New Unsubsidized Stafford, PLUS, and Direct Consolidation loans first disbursed or applied for on or after July 1, 2026 would have a 0% interest rate. The Department would be allowed to refinance eligible non‑Direct loans into Direct Consolidation loans with no origination fee, no interest, and the same repayment term unless the borrower opts out. Consolidation loans would receive credit toward income‑driven repayment and forgiveness under a special weighted accounting rule.
End of subsidized Stafford loans
If enacted, students whose period of instruction begins on or after July 1, 2026 would no longer be eligible for interest‑subsidized Federal Direct Stafford loans. No new subsidized Stafford loans could be made with a first disbursement after June 30, 2026. The bill would raise the maximum annual unsubsidized loan amount by the amount you would have received in subsidized Stafford loans, but students would become liable for interest that was previously subsidized.
New Education Affordability Trust Fund
If enacted, the Department would create an Education Affordability Trust Fund and deposit all Title IV loan repayments into it without further appropriation. A six‑member Board, appointed by the President and confirmed by the Senate, would hire fund managers, set investment rules, and publish annual audited reports. The Board would transfer investment returns to the Department using 180‑day thresholds: under $300 million -> 0%; $300 million–$399,999,999 -> 10%; $400 million–$499,999,999 -> 40%; $500 million or more -> 100%. Fund managers would follow rating, concentration, maturity, and country limits. If transfers produce excess funds, the Department would use them for Supplemental Pell Grants and competitive Postsecondary Student Success grants of $600,000–$1,000,000. The Department would have to use Trust Fund money before other program funds for the affected loan programs.
Annual student loan limit increases
If enacted, loan limits for students whose study begins on or after July 1, 2027 would increase each year by the Secretary's estimate of the annual change in the Consumer Price Index. The Secretary would use the CPI definition in existing law or the most recent calendar year to set the percentage.
Faster rulemaking for Education changes
If enacted, the Secretary of Education would be able to waive the Higher Education Act master calendar and negotiated rulemaking when implementing titles I–III of the bill. This would let the Department make rules faster. It would also reduce formal negotiated rulemaking steps that give stakeholders a structured say.
Sponsors & CoSponsors
Sponsor
Peter Welch
VT • D
Cosponsors
There are no cosponsors for this bill.
Roll Call Votes
No roll call votes available for this bill.
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