Bipartisan Proposal Would Slash Student Loan Interest Rates
Credit: Bill Clark / CQ-Roll Call, Inc / Getty Images- Two Republicans and a Democrat introduced the Affordable Loans for Students Act.
- If passed, it would slash the existing fixed interest rates for student loans.
- Federal student loans currently have an interest rate of at least 6.5%.
- It’s unclear what traction this proposal could have in Congress.
A “game-changer” bipartisan proposal would set a standardized 2% interest rate for all federal student loans.
Rep. Mike Lawler, a Republican representing New York, on March 10 introduced the Affordable Loans for Students Act in the U.S. House of Representatives. The proposal would not only cap student loan interest rates at 2% for all loans, but it would also task the Department of Education (ED) to automatically apply this new interest rate to existing loans.
Borrowers with outstanding loan debt will have the option to opt out of the new interest rate.
A bipartisan team from Florida, Republican Rep. Anna Paulina Luna and Democratic Rep. Jared Moskowitz, co-sponsored the bill.
“This is a game-changer for millions of Americans looking to build a better future without the weight of overwhelming student loan debt holding them back,” Lawler said in a statement.
“By adjusting the rate to 2% and doing this retroactively, we’re giving borrowers the flexibility they need to pay off their debt without unnecessary obstacles, like the outrageous additional cost post-graduation that is now synonymous with quality education.”
The Affordable Loans for Students Act would be a massive change for the federal student loan system.
Currently, interest rates for student loans are more than double the proposed 2% rate, according to Federal Student Aid. Rates are set by Congress each year and vary by loan type.
The interest rate for loans disbursed between July 1, 2024, and July 1, 2025, are:
- Direct loans (undergraduate): 6.53%
- Direct loans (graduate and professional): 8.08%
- Direct PLUS loans: 9.08%
Student loan interest rates work by charging an additional fee each month while a borrower works to pay off the entirety of the loan. The higher the interest rate, the more money a borrower will ultimately have to pay over the course of the standard 10-year repayment plan.
The Affordable Loans for Students Act would also presumably make the federal student loan program less financially lucrative for the federal government, which may be a roadblock to the bill’s passage.
The National Association of Student Financial Aid Administrators (NASFAA) endorsed the proposal.
“The Affordable Loans for Students Act puts forth an equitable approach that would help ease the burden of student loan debt on current and future borrowers,” NASFAA’s vice president of public policy and federal relations, Karen McCarthy, said in a statement.
“This legislation is an important step in promoting access to affordable postsecondary education.”