Congress phases out student loan forgiveness, raises rates, caps borrowing

What it does

This bill restructures federal student lending by phasing out most existing loan programs and replacing them with a new 'Federal Direct simplification loan' starting July 2026, with fixed interest rates (8.25% max for undergraduates, 9.5% for graduates), mandatory 15–25 year repayment terms, and elimination of income-driven repayment and loan forgiveness programs. It also allows states to create alternative accreditation systems for postsecondary programs outside traditional regional accreditation, requires colleges to publish detailed student outcome data (completion rates, earnings, employment, default rates), and imposes annual 'default rate fines' on institutions based on their loan default rates minus the national unemployment rate.

Why we flagged it

The bill's core mechanism is a wholesale replacement of federal student lending with a new simplified loan product featuring higher interest rates and mandatory repayment, paired with elimination of income-driven repayment and loan forgiveness. A secondary mechanism allows states to bypass federal accreditation standards. The bill frames itself as 'reform' and 'accountability,' but the operative effect is a shift of repayment burden to borrowers and a loosening of accreditation oversight.

What the text implies

• Elimination of Public Service Loan Forgiveness (PSLF) and income-contingent repayment for loans made after July 1, 2026, removes a key incentive for public-sector employment (teachers, social workers, military, government) and may reduce workforce participation in these fields.
• State alternative accreditation systems (Section 498C) allow states to accredit non-traditional programs (for-profit, nonprofit, business-based) without meeting federal accreditation standards (Section 494A exempts them from Section 496 and 481 requirements), potentially lowering quality oversight and increasing risk of predatory or low-quality programs accessing federal student aid.
• Default rate fines (Section 401(k)) are calculated as 15% minus national unemployment rate, meaning fines could be negative (credits) during recessions, creating perverse incentive for institutions to enroll during economic downturns when unemployment is high and fines are low.
• Borrowing caps ($30k–$60k for undergraduates, $74k for graduates) may force students to seek private loans or attend lower-cost institutions, potentially widening access gaps for low-income students seeking degrees from higher-cost institutions.
• Mandatory publication of earnings data by program (Section 494B) may create pressure on institutions to defund or eliminate lower-earning programs (humanities, social sciences, public service fields) in favor of higher-earning fields, narrowing educational diversity.

Section numbers refer to the bill text the analysis read — linked under Primary records below.

Who it affects

Borrowers lose income-driven repayment and loan forgiveness, face higher fixed interest rates (8.25–9.5% vs. current 5–7%), and mandatory 15–25 year repayment regardless of income or hardship. While transparency requirements and accreditation flexibility may benefit some students, the elimination of debt relief and income-based repayment is a substantial cost to borrowers, particularly low-income and public-service workers who relied on forgiveness programs.

Who stands to gain

• For-profit education companies (eligible under state alternative accreditation)
• Private loan servicers (if borrowers turn to private loans due to lower federal caps)
• Institutions with low default rates (receive $400 credit per Pell Grant recipient)

Named in the bill

U.S. Department of Education, Secretary of Education, State Departments of Education, Institutions of higher education, For-profit education providers, Accreditation agencies, Comptroller General (GAO), Secretary of Labor

Where it stands

• Feb 27, 2025 — Introduced · Congress.gov: “Introduced in House”
• Feb 27, 2025 — Referred to House Committee on Education and Workforce · Congress.gov: “Referred to the House Committee on Education and Workforce”

Dates and quoted wording are Congress.gov's action record; the timeline shows status changes, not every procedural step.

Money around this bill

1 lobbying clients named this bill on 3 disclosure filings across 3 quarters, Dec 2025 to Jun 2026. Those filings disclosed $820,000 in lobbying spend. A filing names 6 bills on average, so that figure is what each filing reported, not a share belonging to this bill.

More lobbying clients named this bill than 0% of bills with at least one filing.

Chip Roy, the sponsor, reported $68,100 in PAC receipts in the 2026 cycle.

• Slm Corporation — $820,000 on 3 filings

Lobbying Disclosure Act filings through Jul 20, 2026. A filing shows who paid to lobby on a bill it names, not what changed.