The Student Loan Interest Elimination Act is being led by Senator Peter Welch of Vermont and Representative Joe Courtney of Connecticut. Rather than forgiving outstanding balances, the legislation would require borrowers to repay only the amount they originally borrowed, removing interest charges that often increase the total cost of repayment over time.
The proposal comes as federal student loan borrowers continue to face mounting repayment challenges. Representative Joe Courtney argued that record student loan defaults in 2026, combined with the ongoing affordability crisis, have intensified the burden on the country’s millions of borrowers.
Bill Would Eliminate Interest While Keeping Repayment Obligations
The proposed legislation would immediately refinance all existing federally held student loans to a 0 percent interest rate. Future federal student loans would also be issued under the new financing structure established by the bill.
Borrowers would still be required to repay the principal amount they borrowed, but no interest would accrue on those loans. According to Newsweek, Courtney said:
“Student loan defaults have hit record highs in 2026. When we are already in an affordability crisis, bad policies have made crushing student loan debt with record-level interest rates an even greater burden for the 42 million student loan borrowers in the United States.”
Courtney also described the proposal as “the clear commonsense solution to the Student Loan Crisis” and called on Congress to consider and pass the legislation.
The bill would also establish a Department of Education trust fund. Borrowers’ principal payments would be deposited into the fund and invested in relatively safe assets, including Treasury bonds and municipal bonds. Investment returns would then be used to help finance the operation of the federal student loan program.
Millions of Borrowers Could Save Thousands in Interest Payments
Approximately 43 million Americans currently hold federal student loans and would qualify for the proposed refinancing if the legislation became law. Private student loans would not be covered, meaning borrowers who refinanced into private loans or originally borrowed through private lenders would remain subject to their existing interest rates.
According to EducationData.org, a borrower with the average federal student loan balance of approximately $39,547 would pay about $14,074 in interest over a standard 10-year repayment period at a 6.39 percent interest rate. Eliminating interest would remove that entire cost.
Borrowers with larger loan balances, particularly those who attended graduate school, could save considerably more because interest continues accumulating over longer repayment periods. EducationData.org also states that the average borrower takes roughly 20 years to repay student loan debt.
Alex Beene, a financial literacy instructor at the University of Tennessee at Martin, said the proposal would ensure that borrowers’ payments reduce the principal balance immediately instead of being applied to interest for years, potentially shortening repayment periods and preventing loan balances from increasing.
Proposal Faces Significant Political Obstacles Despite Renewed Push
This is not the first time lawmakers have introduced the Student Loan Interest Elimination Act. An earlier version was introduced during a previous session of Congress before being reintroduced in March.
The legislation joins other proposals aimed at reducing borrowing costs. Representative Mike Thompson of California recently introduced the Lowering Student Loans Act, which would establish a fixed 2 percent interest rate for both new and existing direct federal student loans.
Supporters argue that educational debt should not carry substantial interest costs. Senator Peter Welch said:
“Our generation owes the younger generation an opportunity to make the best of themselves, and they can’t do it with this mountain of debt.”
Not everyone believes the proposal is likely to advance. Kevin Thompson, CEO of 9i Capital Group and host of the 9innings podcast, said the measure has “no chance of passing whatsoever,” arguing that borrowers could invest money that would otherwise go toward interest.
Alex Beene also said the bill faces major challenges because it would fundamentally change the way the federal student loan program is financed and raise questions about federal costs. The legislation has been introduced in Congress and referred for further consideration, but it remains in the early stages of the legislative process. With Congress currently controlled by Republicans, the proposal faces an uphill battle.
For now, borrowers will not see any immediate changes to their federal student loan payments. If the legislation were enacted, eligible borrowers could save thousands, and in some cases tens of thousands, of dollars in interest over the life of their loans. Mike Thompson said that one possible outcome would be a significant reduction in government student loans, pushing more borrowers toward the private lending sector.
