This bill makes a major change to how federal student loans work by eliminating interest charges for most borrowers. Starting July 1, 2024, existing federal student loans automatically stop accumulating interest, though borrowers can opt out if they want to keep paying interest. For new loans taken out after that date, interest rates depend on family income: students from families earning up to 400% of the area median income pay 0% interest, while higher-income families pay between 1-4% depending on their income level.

The bill also increases how much students can borrow each year and creates a new Education Affordability Trust Fund. This fund collects repayments from old loans and invests them in bonds to generate profits. Those profits help pay for the zero-interest loans and can also fund additional Pell Grants for low-income students and grants to colleges that keep tuition increases below 3% annually. For private student loans not held by the government, the bill allows borrowers to refinance them into federal loans with no interest and no origination fees.

To make this work, the bill stops issuing new federal subsidized Stafford loans after June 2024, replacing them with unsubsidized loans at the new income-based interest rates. The Trust Fund is managed by a six-member board appointed by the President and confirmed by the Senate, with strict rules about who can serve and how investments must be made. The goal is to make college more affordable by reducing the total amount borrowers have to repay while funding education programs through investment returns rather than interest payments.

Student Loan Interest Elimination Act

Welch, Peter

Student Loan Interest Elimination ActThis bill makes changes to federal student loans, including to interest rates.&nbsp;Specifically, 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, 2024, 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.Next, the bill creates a tiered interest rate (based on the borrower's total adjusted available income) for federal student loans made on or after July 1, 2024. The bill caps this interest rate at 4%.The bill establishes the Education Affordability Trust Fund. ED must deposit all payments made on federal student loans into this trust fund. The Trust Fund Board, as established by this bill, must transfer the profits 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.