Affordable Loans for Students Act
The Affordable Loans for Students Act would lower federal student loan costs by establishing a 2.0% interest rate for modified or refinanced loans and by creating a streamlined loan modification/refinancing program. For loans held by the U.S. Education Department (the Secretary), the Act requires automatic modification so that, starting July 1 after enactment, the interest rate on the unpaid balance becomes 2.0%. For loans not held by the Secretary, it would automatically refinance those loans into Federal Direct Consolidation Loans at 2.0% with an option for borrowers to opt out. The bill also applies a 2.0% rate to new loans issued after the first July 1 following enactment. It includes reporting requirements to track how many loans are modified or refinanced and any delinquencies, and it makes conforming amendments to existing law to support these changes. In short, the bill aims to dramatically reduce interest costs for federal student loans through automatic loan modification/refinancing and by setting a 2% rate for new loans issued after enactment.
Key Points
- 1Establishes a 2.0% interest rate for the unpaid principal balance of loans that are modified or refinanced under the new program, starting July 1 after enactment.
- 2Creates Section 460A: a program for loan modification of eligible federal loans held by the Secretary and refinancing of eligible federal loans not held by the Secretary.
- 3- For Secretary-held loans: automatic modification to 2.0% interest with no borrower action required, beginning July 1 after enactment.
- 4- For non-Secretary-held loans: automatic refinancing into Federal Direct Consolidation Loans at 2.0% with an option to opt out; the consolidation pays off the old loan to the original lender.
- 5Terms of refinanced loans: same as standard Direct Consolidation Loans except may adjust terms to preserve access to any more favorable forgiveness or benefits; no origination fees; no automatic extension of the repayment period; borrower can choose a different repayment plan later.
- 6Defines which loans qualify as “eligible federal loans held by the Secretary” and “eligible federal loans not held by the Secretary,” including various Direct Loans, insured/guaranteed loans, and certain Public Health Service Act loans.
- 7Requires a report to Congress within 180 days after the second July 1 following enactment, and annually thereafter, on the number of borrowers modified/refinanced and the number who are delinquent.
- 8Adds conforming amendments to the Higher Education Act to enable these processes.
- 9Applies a 2.0% rate to new loans (for first disbursement or application received on or after the first July 1 after enactment) for Federal Direct Stafford Loans, Direct Unsubsidized Stafford Loans, Direct PLUS Loans, and Direct Consolidation Loans.