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No interest on federal student loans in new bill proposal
A new bill in Congress aims to refinance federal student loans at 0% interest, with funding tied to investments in municipal and Treasury bonds.
A proposed bill in Congress seeks to eliminate interest on federal student loans by refinancing all current federal loans to 0% interest, though it would not apply to private loans.
Currently, interest payments are used to operate the federal student loan program. The bill proposes creating a new Department of Education trust fund, funded by borrowers’ principal payments. The government would then invest that money in municipal and Treasury bonds, with the returns on those investments used to run the federal student loan program.
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It is unclear what would happen if the market underperforms and the return on investment is insufficient to sustain the program. However, if the investments perform well, the bill states that any additional revenue would be used to increase Pell Grant funding and provide competitive grants to support college completion and retention programs.
Access to the trust fund would only apply to universities that do not raise tuition by more than 2%. Additionally, future borrowers would pay interest rates ranging from 0% to 4%, depending on financial need.
