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Rubio Reintroduces Bill to Eliminate Interest for Federal Student Loans
Washington, D.C. — U.S. Senator Marco Rubio (R-FL) reintroduced the Leveraging Opportunities for Americans Now (LOAN) Act, legislation that would reform the federal direct student loan system by eliminating interest and replacing it with a one-time, non-compounding origination fee that borrowers will pay over the life of the loan. The LOAN Act would also place borrowers in an income-based repayment (IBR) plan, ensuring working-class Americans are not further burdened with monthly repayments they are unable to afford. Rubio first introduced the LOAN Act in May 2019.
“Working-class Americans should be able to pursue an education without having to worry about finding themselves trapped in an insurmountable debt cycle for years beyond graduation,” Rubio said. “My bill would reform our federal student loan system so that borrowers don’t get stuck with debt they can never repay. Instead of accruing interest, borrowers will pay a one-time fee paid out over the life of the loan and will be automatically placed in an income-based repayment plan. It’s time to update our federal student loan system, because fear of debt should never stand in the way of an education and the pursuit of a better life.”
“UNCF has been a long champion of reforming our financial aid system, and we have been vocal in advocating for reducing the burden on students to repay their loans,” President and CEO of UNCF (United Negro College Fund, Inc.) Dr. Michael L. Lomax, said. “I am excited to support a bill that would not only eliminate interest rates on student loans, but create a process that increases equity in our financial aid system and takes unforeseen financial circumstances that would affect a borrower’s ability to repay their loan, regardless of income, into consideration. This is a strong and robust proposal, and low-income students would fair better under the repayment system this bill creates versus our current structure. It is my hope that this bill will spur further conversation and proposals around innovative ways to reform our federal financial aid system that benefits our low-income students.”
“Importantly, the LOAN Act would mirror BPC’s recommendations to streamline income-driven repayment (IDR) options and make IDR the default plan for borrowers, promoting affordable monthly payments and improving repayment outcomes,” Executive Director of Bipartisan Policy Center Action Michele Stockwell, said. “These changes would support federal student loan borrowers by promoting simplification, transparency, and automatic features in the student loan repayment process.”
The LOAN Act:
- Beginning with the 2022 school year, all federal direct student loans will have one-time financing fees instead of interest, which will be paid over the life of the loan and not accumulate with age.
- This financing fee will not increase over time and it will finally give borrowers greater understanding of the actual costs of higher education.
- Borrowers enrolled in school but haven’t graduated before this date have their choice to continue using the current loan system or the new, interest free loans created by the LOAN Act.
- Borrowers will automatically be placed in an income-based repayment (IBR) plan, where they pay 10% of their earnings in excess of 150% of the federal poverty line, except in times of unforeseen financial hardship.
- Borrowers can still choose the standard 10-year repayment plan, but this will no longer be the default.
- Borrowers that pay more towards their loan than necessary can have their financing fee reduced, ensuring there is still an incentive to pay off loans in advance.
- The borrower’s income would be verified by the Treasury based on tax filings. Those earning less than 150% of the federal poverty line would not have to contribute toward their loan.