S. 4169 — Student Loan Interest Elimination Act

This section revises the funding authority for the William D. Ford Federal Direct Loan Program—under which the Department of Education provides Direct Loans (i.e., Federal Direct Stafford/Ford Loans and similar loans) to eligible students and parents at participating institutions—by making such sums as may be necessary available only after using funds from the Education Affordability Trust Fund in accordance with section 494A. The section also expands the program's purposes to include making loans under section 460A(b).

This section establishes a new program to eliminate interest accrual on eligible federal student loans. Specifically, the Secretary of Education must (1) automatically modify terms of eligible Federal Direct Loans—defined to include Direct Loans first disbursed before July 1, 2026; Federal Family Education Loan (FFEL) Program loans and Federal Perkins Loans held by the Secretary; and certain health professions loans held by the Secretary—so that no interest accrues beginning July 1, 2026 (with borrower opt-out available at any time); and (2) automatically refinance eligible non-Federal Direct Loans—defined to include FFEL Program loans, Federal Perkins Loans, and certain health professions loans not held by the Secretary (with service conditions for some)—into Federal Direct Consolidation Loans with no interest accrual, no origination fees, preserved repayment periods and access to any repayment plan under section 455(d)(1), and borrower opt-out available at any time (Thus, affected borrowers retain pre-refinancing loan forgiveness or benefits if more generous, and further consolidation remains possible.). The section further requires the Secretary to submit annual reports to the authorizing committees, beginning one year after enactment, detailing the number of borrowers with modified or refinanced loans and those delinquent on such loans.

This section revises interest rates under Section 455(b)(8) of the Higher Education Act by limiting rates specified in subparagraphs (A) through (E)—previously applicable to certain Federal Direct Loans first disbursed on or after July 1, 2013—to such loans first disbursed before July 1, 2026, and establishes a 0% interest rate on the unpaid principal balance for Federal Direct Unsubsidized Stafford Loans, Federal Direct PLUS Loans, and Federal Direct Consolidation Loans for which the first disbursement is made, or the application is received, on or after July 1, 2026. (Thus, no interest accrues on principal for qualifying new loans issued on or after that date; subsidized Stafford Loans are unaffected.)

This section (1) terminates authority under the William D. Ford Federal Direct Loan Program to make new Federal Direct Stafford Loans (i.e., interest-subsidized loans referenced in section 455(a)(2)(A)) for which the first disbursement is after June 30, 2026, with no funds authorized or permitted to be appropriated or expended for such loans; and (2) effective for periods of instruction beginning on or after July 1, 2026, eliminates student eligibility for Federal Direct Stafford Loans while increasing maximum annual Federal Direct Unsubsidized Stafford Loan amounts to the levels under former section 428H plus the amount previously available for subsidized loans. (Thus, students lose access to government-paid interest during in-school, grace, and deferment periods but retain equivalent total unsubsidized borrowing capacity.)

This section establishes an inflation adjustment for the maximum annual loan amounts specified in Section 455(a)(4) of the Higher Education Act of 1965 (20 U.S.C. 1087e(a)(4)) (i.e., for Federal Direct Stafford Loans and Federal Direct Unsubsidized Stafford Loans) and the maximum aggregate loan amounts specified in Section 455(a)(6), effective for periods of instruction beginning on or after July 1, 2027. The adjustment increases each amount by the annual adjustment percentage, defined as the estimated percentage change in the Consumer Price Index for the most recent calendar year ending prior to the academic year (as determined by the Secretary using the definition in Section 478(f)); it also makes conforming changes to cross-references in paragraphs (4)(A), (4)(B), and (6). (Thus, these Direct Loan limits—which have been largely static since 2007/2008—will automatically rise with inflation.)

This section establishes a Supplemental Federal Pell Grant Program, which authorizes the Secretary of Education to use excess amounts described in section 494A(c) (or a portion thereof) to award additional Federal Pell Grants—proportional to each eligible student's regular Pell Grant relative to total regular Pell Grants awarded that award year—to all students receiving a regular Federal Pell Grant that year. (Federal Pell Grants provide need-based aid to low-income undergraduate students.) These supplemental grants (1) may cause a student's total Pell Grant (regular plus supplemental) to exceed the total maximum Federal Pell Grant for the award year, (2) may be lower than the minimum Federal Pell Grant, and (3) do not count toward a student's lifetime Pell eligibility duration limit under subsection (d)(5).

This section establishes new requirements under the Higher Education Act of 1965 for depositing all repayments on title IV federal student loans into the Education Affordability Trust Fund without further appropriation and using the Trust Fund's "assets"—defined as bond investment returns exceeding such repayments—for Direct Loan program (part D) administrative costs. The Trust Fund Board must transfer the following percentages of assets, based on amounts under management over any 180-day period: (1) 100% if $500 million or more; (2) 40% if $400 million to less than $500 million; (3) 10% if $300 million to less than $400 million; and (4) 0% if less than $300 million. Excess transferred amounts may be used at the Secretary of Education's discretion for (1) the Supplemental Federal Pell Grant Program, which provides additional grant aid to Pell-eligible students enrolled in high-cost degree or certificate programs; and (2) the Postsecondary Student Success Program (part B, title VII), which supports institutions in improving student outcomes such as persistence and completion. For the latter, eligibility is expanded to institutions with average tuition increases of no more than 3% over the prior three academic years, assurances of no more than 3% increases over the next three years, or endowments of $100 million or less (as defined in section 312(c)); grants are awarded competitively in amounts of not less than $600,000 and not more than $1 million. Use of excess amounts requires a report to Congress, with testimony, within 180 days.

This section establishes the Education Affordability Trust Fund within the Department of Education to provide zero-interest federal student loans to existing and future borrowers and to defray the Trust Fund's administrative expenses. The section creates a 6-member Education Affordability Trust Fund Board, appointed by the President with Senate confirmation no later than 90 days after enactment, to oversee the Trust Fund. Board members must have financial investment expertise (at least 10 years' experience), with at least 3 having worked with rural lenders, historically disenfranchised groups, or low-income communities; they must not be current elected officials and are disqualified if required to register as lobbyists under the Lobbying Disclosure Act of 1995 (2 U.S.C. 1603) or if they are (or were within 4 years) a Member of Congress or congressional officer or employee. Board members serve 6-year staggered terms (2 ending every 2 years, with no more than 2 from the same political party in matching terms), renewable once, and continue serving until a successor is appointed; the President may remove members only for cause, and each member serves as chair in their final year. The Board must meet quarterly (with the fund manager attending at least twice yearly and emergency meetings required if assets drop below $300 billion after reaching $500 billion); it adopts investment guidelines unanimously and other decisions by majority vote. Members receive per diem compensation at Executive Schedule level IV and travel expenses; they must divest or blind-trust conflicting interests. The Board appoints independent fund managers (initially within 60 days of full Board appointment, with the chair appointing if the Board deadlocks), retains advisers for investment guidelines, pays Trust Fund expenses from its assets, and manages investments as a fiduciary with prudent diversification to minimize risk and support student loan purposes.

This section authorizes the Secretary of Education, in implementing amendments made by titles I, II, and III, to waive (1) the master calendar requirements under section 482 of the Higher Education Act of 1965 (20 U.S.C. 1089) (i.e., deadlines for developing and distributing federal student aid forms, publishing notices, and allocating campus-based and Pell Grant funds to ensure timely delivery of aid); and (2) negotiated rulemaking requirements under section 492 of that Act (20 U.S.C. 1098a).