S-4169-119
Read twice and referred to the Committee on Health, Education, Labor, and Pensions.
Sponsored by Peter Welch (D-VT)
What it does
This bill would set the interest rate to 0% on all federal student loans — both existing and new — beginning July 1, 2026. For existing loans, the Department of Education (ED) would be required to modify Direct Loans to stop accruing interest and to refinance other eligible federal loans (such as older Family Education Loans and Perkins Loans) on the same zero-interest terms; borrowers could opt out of either change. For new loans made on or after July 1, 2026, the interest rate would be fixed at 0%. The bill would also create an Education Affordability Trust Fund, into which all loan repayments would be deposited, with a Board overseeing transfers to cover ED's administrative costs and any surplus directed toward a Supplemental Pell Grant Program.
Who benefits
The approximately 43 million Americans currently holding federal student loan debt, who would stop accruing interest immediately. Recent and future graduates who take out new loans after July 1, 2026. Borrowers in income-driven repayment plans, who often see balances grow due to interest even while making payments. Lower- and middle-income borrowers who carry balances longest and pay the most in cumulative interest. Pell Grant-eligible students, who could benefit from the Supplemental Pell Grant Program funded by trust fund surpluses. Community college and graduate students with large or long-term balances.
Who is hurt
The federal government (and by extension taxpayers) would forgo substantial interest revenue currently collected on the roughly $1.6 trillion federal student loan portfolio. Private lenders holding older Family Education Loans that are refinanced into the federal system could lose those assets. Future borrowers may face indirect effects if reduced loan revenue leads to tighter federal lending terms over time. Institutions and programs funded by federal education revenue could face pressure if trust fund surpluses are insufficient. Taxpayers broadly, who may bear the fiscal cost through increased deficits or reduced spending elsewhere.
Supporters argue
Supporters argue that the federal government currently profits from student loan interest — with the Congressional Budget Office estimating tens of billions in annual net income from the portfolio — making interest charges a tax on education rather than a cost-recovery mechanism. They contend that interest is the primary driver of "negative amortization," where borrowers make consistent payments yet see their balances grow, trapping millions in long-term debt. Eliminating interest, they argue, would allow every dollar repaid to reduce principal, accelerating payoff and freeing household income for consumption, homeownership, and retirement savings.
Opponents argue
Opponents argue that eliminating interest on $1.6 trillion in outstanding loans would cost the federal government hundreds of billions of dollars in foregone revenue over the coming decades, with costs ultimately borne by taxpayers — including the majority who did not attend college or did not take on federal debt. They contend the bill disproportionately benefits higher-income degree holders, who borrowed more and stand to save more in interest, rather than the lowest-income borrowers already protected by income-driven repayment and forgiveness programs. Critics also argue the policy removes a pricing signal that encourages borrowers and institutions to weigh the cost of debt against expected earnings.