Newsweek34%
Student Loan Update: New Bill Would Cut Payments by Thousands of Dollars 47%
By Suzanne Blake73%
7/23/2026, 9:39:21 PM
BS Summary: This article contains 22 faulty reasoning types, including Negativity Bias, Framing Effect, and Appeal to Emotion, with Pessimism Bias as the most egregious example at 11.3% saturation with 112 hits. Analysis detected 1,164 faulty-reasoning hits from 991 analyzed words, generating a BS Score of 48.7% and a BS Rank of 47% (11,312 of 21,187 articles). This article is better (less manipulative) than 53.40% of the article peer group.
Millions of Americans with federal student loans could see their monthly payments fall and save thousands of dollars under a new proposal in Congress.
The Student Loan Interest Elimination Act has been championed by two Democrats—Senator Peter Welch of Vermont and Representative Joe Courtney of Connecticut—and would eliminate interest on federal student loans entirely.
The law specifically would refinance existing federal student loans to a 0 percent interest rate while also restructuring how future federal student loans are financed.
Why It Matters
If enacted, the legislation would be one of the biggest student loan reforms introduced in recent years.
Unlike other proposals, which merely reduce interest rates, this would eliminate them altogether.
Interest rates are often what makes student loans feel impossible for many borrowers to repay, as years of interest accumulation can dramatically increase the total amount repaid.
What To Know
The bill would immediately refinance interest on existing federally held student loans to 0 percent and establish new rules for future federal student lending.
“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 said in a statement.
“It’s time for Congress to take up fresh ideas to address this longstanding crisis for borrowers and the entire U.S. economy… This is the clear commonsense solution to the Student Loan Crisis.
Congress shouldn’t wait to take up and pass our bill.”
Approximately 43 million Americans currently hold federal student loans and would benefit from the legislation.
And unlike student loan forgiveness proposals that erase balances, borrowers would still be required to repay what they borrowed.
What would disappear is just the interest charged on those loans.
“For borrowers, that would ensure payments reduce the principal amount instead of having to go for years toward interest, potentially shortening repayment periods and preventing balances from growing,” Alex Beene, a financial literacy instructor for the University of Tennessee at Martin, told Newsweek.
The legislation would also create a Department of Education trust fund.
Borrower payments toward principal would be deposited into the fund and invested in relatively safe assets such as Treasury bonds and municipal bonds.
Subsequently, those investment returns would be used to support the cost of operating the federal student loan program.
How Much Could Borrowers Save?
The exact savings would vary depending on a borrower's balance, interest rate and repayment timeline.
Based on EducationData.org’s calculation, a borrower with the average federal student loan balance of roughly $39,547 would pay about $14,074 in interest over a standard 10-year repayment period at 6.39 percent.
But eliminating interest would effectively remove that cost.
For borrowers carrying larger balances, particularly graduate school borrowers, savings could be substantially higher.
Many borrowers spend far longer than 10 years repaying their debt, which increases interest costs even further.
The average borrower takes roughly 20 years to repay student loan debt, according to EducationData.org.
Who Would Qualify?
The legislation would only apply to federal student loans, not private student loans.
That means existing borrowers with federally held loans would be eligible for refinancing to zero percent under the proposal.
Future federal student loan borrowers would also be covered under the bill.
However, the proposal does not eliminate private student loan interest, so borrowers who refinanced into private loans or took out private education loans would not receive the same benefits.
Who Supports the Bill?
The legislation is being led by Welch and Courtney, who say that borrowers should not be burdened by excessive interest charges on educational debt.
“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,” Welch said in a statement.
Currently, the outstanding federal student loan balance is approaching $2 trillion, and the average federal borrower carries roughly $40,000 in debt.
However, not everyone sees the bill as politically or financially viable.
“I see this as having no chance of passing whatsoever,” Kevin Thompson, the CEO of 9i Capital Group and the host of the 9innings podcast, told Newsweek.
“You simply cannot give away free money, especially when borrowers can take that money and invest it elsewhere for a virtually risk-free return.
This is a non-starter.”
Have Similar Proposals Been Introduced Before?
This is not the first time the legislation has appeared in Congress.
An earlier version of the legislation was introduced during a previous Congress before being reintroduced in March.
There have also been several proposals aimed at lowering federal student loan interest rates rather than eliminating them outright.
Representative Mike Thompson, a California Democrat, introduced the Lowering Student Loans Act a few weeks earlier.
That bill would set a fixed 2 percent rate on all new and existing direct loans.
What Are the Chances of Passage?
The bill faces significant hurdles.
While it was introduced in Congress and referred for further consideration, it’s still in the early stages of the legislative process.
And in the current Congress controlled by Republicans, it’s likely facing an uphill battle.
“As appealing as the measure would be to current and future borrowers, the chances of passing are very low because these measures would fundamentally change how the federal loan program is financed and raise legitimate questions about the federal cost involved,” Beene said.
What Happens Next
For now, borrowers will see no immediate changes to their federal student loan bills.
But if the legislation were enacted, millions of borrowers could potentially save thousands, if not tens of thousands, of dollars in interest costs over the life of their loans.
“The likely outcome would be a significant reduction in government student loans forcing many borrowers towards the private sector if this came to fruition,” Thompson said.
Contact Newsweek editors on this story: Jason Lemon and Sam Wilson.
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