LOAN Act
H.R. 4862, the Lowering Obstacles to Achievement Now Act (LOAN Act), proposes a broad expansion and reshaping of federal student aid and loan programs. Its centerpiece is to dramatically increase Pell Grants by mandating funding and tying future growth to inflation, with a staged schedule that reaches a maximum of roughly $14,000 for the award year 2030-2031 and beyond. It also extends Pell eligibility (to 18 semesters), broadens eligibility to DREAMer students, and adds special treatment for means-tested benefit recipients. The bill aims to reduce borrowing costs and simplify repayment by eliminating origination fees, ending interest capitalization, creating streamlined repayment options, auto-enrollment in income-driven plans, and bolstering the Public Service Loan Forgiveness (PSLF) program with a new online portal and stricter employment criteria. It also introduces new or revised policies on loan subsidies for graduate students, refinancing, and handling defaults. A notable structural change is the repeal of certain provisions from Public Law 119-21, effectively restoring the Higher Education Act provisions as if those subtitles had not been enacted, while still pursuing the new LOAN Act reforms. In short, the bill seeks to make college more affordable upfront (via much larger Pell Grants and broader eligibility) and to lower long-term debt and friction in repayment (through loan term improvements, reduced costs, and PSLF enhancements), funded by mandatory appropriations for Pell and related reforms.
Key Points
- 1Pell Grants expanded and funded by mandatory appropriations
- 2- Maximum Pell grant amounts rise over time (2026-27: $10,000; 2027-28: $11,000; 2028-29: $12,000; 2029-30: $13,000; 2030-31: $14,000; 2031-32 and later: $14,000 with CPI-based adjustments, rounded to the nearest $50).
- 3- Total maximum Pell Grant funding would be provided as mandatory funding (automatic, not subject to annual discretionary appropriations).
- 4- Restores Pell eligibility to 18 semesters (up from 12).
- 5- Expands eligibility for dreamer students and makes Pell available to certain graduate students.
- 6Additional Pell features for means-tested beneficiaries
- 7- Adjusts the Student Aid Index calculations so that students with negative index values can receive Pell supplements beyond the standard maximum.
- 8- Creates a special rule for means-tested benefit recipients to count a negative aid index toward Pell eligibility.
- 9Dreamer (DACA-related) aid eligibility
- 10- Adds DREAMer students to federal aid eligibility, with defined criteria similar to those used for other noncitizen students.
- 11- Establishes a hardship-based mechanism to waive certain age requirements for DREAMer eligibility.
- 12Public Service Loan Forgiveness and other loan reforms
- 13- Reforms to PSLF (streamlining, including an online portal and data matching, and expanded employer eligibility).
- 14- Loan forgiveness provisions for teachers and related data reporting requirements (GAO study).
- 15Loan terms, interest, and repayment
- 16- Subsidized loans extended to graduate/professional students (with defined covered institutions) starting July 1, 2026.
- 17- Repeals origination fees for Direct loans (0% origination fee starting July 1, 2026).
- 18- Allows prepayment amounts to be applied flexibly, potentially reducing overall interest costs.
- 19- Elimination of interest capitalization (where accrued interest is added to principal) and related disclosure requirements.
- 20- Introduction of new or streamlined repayment options (including automatic enrollment in income-driven plans) and clarifications on periods of repayment.
- 21Interest rates and refinancing
- 22- Establishes new terms for interest rates on new federal loans issued after July 1, 2026.
- 23- Provides refinancing options for FFEL and Federal Direct Loans and for private loans.
- 24- Expands refinancing pathways to reduce borrower costs and debt burdens.
- 25Repeal and restoration of policy
- 26- Repeals Subtitle A through F of title VIII of Public Law 119-21, restoring Higher Education Act provisions as if those subtitles had never been enacted.