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 zero on federal student loans first disbursed on or after July 1, 2026, and would eliminate subsidized Stafford loans going forward. It would let the Secretary of Education modify existing federal loans to stop accruing interest and refinance certain non-federal loans into zero-interest federal consolidation loans, raise annual and aggregate loan limits with inflation adjustments, and establish an "Education Affordability Trust Fund" managed by a new presidentially appointed, Senate-confirmed board that invests loan repayments in bonds and uses investment returns to help fund the loan program and supplemental Pell Grants.
Who benefits
Current and future federal student loan borrowers, who would no longer pay interest on their loans; borrowers with older, higher-interest private or older federal loans (like FFEL Program loans) who could refinance into zero-interest federal loans; Pell Grant recipients who could receive supplemental awards funded by trust fund earnings; the six individuals appointed to the new Trust Fund Board, who would receive Executive Schedule Level IV compensation; bond issuers such as the Treasury, Fannie Mae, Freddie Mac, and municipalities that would receive new investment inflows.
Who is hurt
Taxpayers generally, who would bear the cost of forgone interest revenue that currently helps offset loan program costs and any shortfalls in trust fund performance; the Department of Education, which would take on new administrative burdens implementing loan modifications, refinancing, and trust fund operations; students who might see reduced loan protections if the elimination of the subsidized loan program increases their unsubsidized borrowing without a corresponding interest benefit during school; private and FFEL lenders whose loans could be refinanced away from them, cutting off their revenue stream; institutions of higher education, particularly those with large endowments or fast-rising tuition, that could be excluded from certain grant programs under the trust fund's eligibility criteria.
Supporters argue
Supporters argue that eliminating interest on federal student loans directly addresses the reality that many borrowers end up paying far more than they originally borrowed, with interest accumulation trapping millions in long-term debt cycles despite steady payments. They contend that pairing this with a self-funding trust fund invested in low-risk bonds, plus supplemental Pell Grants funded by investment returns, creates a sustainable mechanism to make higher education more affordable without requiring new annual appropriations from Congress.
Opponents argue
Opponents argue that eliminating interest removes a key funding mechanism that offsets the federal loan program's costs, potentially shifting billions of dollars in costs to taxpayers over time, especially if trust fund bond investments underperform or loan repayments decline. They contend that creating a new six-member board with broad investment discretion, limited congressional appropriation control, and Executive Schedule compensation adds a layer of financial risk and bureaucratic complexity that could ultimately destabilize funding for federal student aid rather than making it more predictable.
Constitutional context
Congress's authority to structure federal student loan terms and appropriations derives from the Spending Clause (Art. I, §8, cl. 1), and creation of the Trust Fund Board with presidentially appointed, Senate-confirmed members implicates the Appointments Clause (Art. II, §2, cl. 2). This bill does not raise a novel constitutional question comparable to recent religion-clause or major-questions rulings; it operates within Congress's established spending and appointment powers.
Checks and balances
Congress delegates significant financial management authority to a new executive branch board with investment discretion and removal protections limiting presidential control to cause-based removal, while retaining oversight through mandatory annual reports and audits submitted to Congress.
Historical precedent
The 2013 Bipartisan Student Loan Certainty Act restructured federal student loan interest rate calculations, though it did not eliminate interest entirely as this bill would.