Two bills introduced in Congress last month propose sharply cut federal student loan interest rates: one to 0%, the other to a fixed 2%.
The Student Loan Interest Elimination Act (S.4169 / H.R.8045), introduced March 24 by Sen. Peter Welch (D-VT) and Rep. Joe Courtney (D-CT), would eliminate interest entirely on both existing and new federal loans starting July 1, 2026. Weeks earlier, Rep. Mike Thompson (D-CA) introduced the Lowering Student Loans Act (H.R.7810) on March 4, which would set a fixed 2% rate on all new and existing Direct Loans beginning the same date.
Both bills target the same problem from different angles and neither is likely to advance in the current Congress.
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Why This Matters: Nearly 43 million Americans hold roughly $1.7 trillion in federal student loan debt. Interest is a major cost driver - many borrowers pay thousands of dollars over the life of their loans, and interest capitalization can push balances higher than the original amount borrowed. Reducing or eliminating interest would lower the total cost of repayment for borrowers on standard or extended repayment plans.
Interest accrual has been a consistent source of frustration for student loan borrowers.
What's In Each Bill?
Student Loan Interest Elimination Act (S.4169 / H.R.8045) — Welch & Courtney (Full Bill Text)
- Sets interest to 0% on all existing federal Direct Loans automatically, with no borrower action required
- All new federal loans issued after July 1, 2026 carry a 0% rate
- FFEL and Perkins loans not held by the Department of Education can be consolidated into Direct Consolidation Loans at 0% with no origination fees
- Eliminates subsidized loans (no longer needed at 0%) and raises unsubsidized borrowing limits to compensate
- Indexes annual and aggregate loan limits to CPI starting July 2027
- Creates an Education Affordability Trust Fund, managed by a six-member presidentially appointed board, that invests borrower repayments into bonds to finance the program and potentially expand Pell Grants
Lowering Student Loans Act (H.R.7810) — Thompson (Full Bill Text)
- Sets a fixed 2% interest rate on all new Direct Loans issued on or after July 1, 2026
- Retroactively reduces the rate on existing Direct Loans to 2%, beginning July 1, 2026
- The 2% rate is fixed for the life of the loan
- Borrowers with older FFEL loans can consolidate into Direct Loans to access the lower rate
- Borrowers receive 90 days advance notice and can opt out
- A simpler bill overall — it changes the rate without restructuring the loan program or creating new funding mechanisms
What Borrowers Should Know: Lowering interest rates wouldn’t change monthly payments for the majority of federal borrowers. Nearly 60% of borrowers are on income-driven repayment (IDR) plans, where monthly payments are based on income and family size — not on the loan balance or interest rate.
For those borrowers, a rate cut to 0% or 2% wouldn’t put a single extra dollar in their pocket each month. It would lower the total amount repaid over time and shrink balances faster, but for many who are pursing loan forgiveness, balance also doesn't matter (one exception has to do with the tax bomb, but that's also overblown for many).
The borrowers who would see a direct monthly payment reduction are those on the standard 10-year plan or other fixed-payment plans where the rate directly affects the payment amount. You can read more about whether your student loan interest rate actually matters.
Where Things Stand: The Welch-Courtney bill (S.4169) has been referred to the Senate HELP Committee with one cosponsor. The Thompson bill (H.R.7810) was referred to the House Education and Workforce Committee with two cosponsors. Neither bill has a CBO cost estimate. Both were introduced by Democrats in a Republican-controlled Congress, making passage in the current session extremely unlikely.
How This Connects: These proposals come as federal student loan interest rates for next year (2026-27) are likely to drop slightly under the current market-based formula, which has been in place since 2013. You can see the full history of federal student loan interest rates to understand how rates have changed over time.
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Editor: Colin Graves
Robert Farrington is the founder of The College Investor and is widely recognized as one of the nation’s leading voices on student loan debt and saving for college. He holds an MBA from UC San Diego Rady School of Management and has spent over 15 years researching, writing, and advising on student loans, 529 plans, financial aid programs, and saving and investing for young professionals.
Robert has been featured in the The New York Times, The Wall Street Journal, The Washington Post, NBC News, and Forbes, where he has been a regular personal finance contributor for over a decade. His work combines both professional expertise and personal experience – he successfully navigated his own student loan repayment journey and has helped thousands of readers do the same.
He is committed to making the intersection of personal finance and education transparent and accessible. You can learn more about Robert on the About Page or on his personal site RobertFarrington.com.