LOAN Act
- Bill Number
- H.R. 4862
- Origin Chamber
- House
- Congress
- 119th Congress, Session 1
- Policy Area
- Education
- Status
- Introduced
- Latest Action
- 2025-08-01: Referred to the Committee on Education and Workforce, and in addition to the Committee on the Budget, for a period to be subsequently determined by the Speaker, in each case for consideration of such provisions as fall within the jurisdiction of the committee concerned.
- Last Updated
- 2026-07-07T16:28:09Z
AI-Generated Summary
Summary of H.R. 4862: Lowering Obstacles to Achievement Now Act (LOAN Act)
Purpose
The LOAN Act aims to make higher education more affordable and accessible by amending the Higher Education Act of 1965. It focuses on increasing grant aid, simplifying and improving student loan repayment options, reducing interest costs, and expanding forgiveness programs, particularly for public service workers. The bill also repeals certain prior provisions from Public Law 119-21 to restore and enhance original protections under the Higher Education Act.
Key Provisions
- Federal Pell Grants (Title I):
- Doubles the maximum Pell Grant award, starting at $10,000 for the 2026-2027 academic year, rising annually to $14,000 by 2031-2032, with future adjustments for inflation based on the Consumer Price Index.
- Shifts all Pell Grants to mandatory funding (automatic appropriations) to ensure stability.
- Provides extra grants for students with a negative Student Aid Index (a measure of financial need) or those receiving means-tested federal benefits (e.g., SNAP or Medicaid), treating their index as -$1,500.
- Extends eligibility to "Dreamer students" (undocumented individuals brought to the U.S. as children, similar to DACA recipients, who meet education or service criteria).
- Increases lifetime Pell eligibility from 12 to 18 semesters.
- Eases penalties for students failing satisfactory academic progress (e.g., more warnings, probation periods, and resets after breaks in enrollment).
- Allows Pell Grants for certain graduate or post-baccalaureate students who haven't used full undergraduate eligibility.
- Loan Terms and Repayment (Title II):
- General Changes (Part A): Restores subsidized loans (government pays interest while in school) for graduate and professional students at eligible U.S. institutions; eliminates origination fees (upfront loan charges); allows penalty-free prepayments with clear application rules; simplifies default handling.
- Repayment Plans (Part B): After July 1, 2026, limits options to one fixed repayment plan (10-30 years based on loan amount, minimum $50/month) or one Income-Driven Repayment (IDR) plan (payments based on income above 225% of poverty line, 5-10% of discretionary income; forgiveness after 10-25 years depending on loan type and amount).
- Automatic Enrollment (Part C): Automatically enrolls delinquent (80+ days late) or default-rehab borrowers in IDR; uses IRS data for income verification with opt-out options.
- Public Service Loan Forgiveness (PSLF) Improvements (Part D): Reduces required payments from 120 to 96 months (8 years) while in full-time public service (government, nonprofits; includes independent contractors); expands qualifying payments/deferments; creates an online portal and job database; allows "buyback" payments for past gaps; streamlines certification and appeals.
- Default Support (Part E): Removes default records from credit reports upon full repayment or consolidation; eases loan rehabilitation (9 affordable payments over 10 months, limited to twice per loan); suspends wage garnishment during rehab.
- Interest Capitalization (Title III):
- Eliminates capitalization (adding unpaid interest to principal, increasing loan balance) across all federal loans, deferments, forbearances, and repayment plans. Unpaid interest accrues but isn't added to the principal.
- Interest Rates (Title IV):
- For new loans after July 1, 2026, caps rates at the lesser of the 10-year Treasury note yield or 5% (fixed for the loan term); consolidation loans weighted average capped at 5%.
- Allows refinancing of older federal loans (pre-2026) and FFEL loans (pre-2010) into new Direct Loans at rates up to 5%.
- Creates a program to refinance private student loans into federal loans at up to 5%, for borrowers in good standing (requires counseling; excludes from loan limits and most forgiveness programs).
- Other: Requires notifications to borrowers about options; mandates GAO study on automating PSLF employment verification; updates disclosures to remove capitalization references.
Significant Changes to Existing Law
- Repeals subtitles A-F of Public Law 119-21, restoring prior Higher Education Act provisions on aid and loans.
- Overhauls repayment from multiple plans (e.g., standard, extended, income-based) to just two simplified options post-2026, sunsetting older plans for new loans.
- Shortens PSLF timeline from 10 to 8 years; broadens qualifying employment and payments; adds buyback and appeals processes.
- Ends interest capitalization entirely (previously occurred in scenarios like deferment or income-driven plans), potentially saving borrowers billions in compounded interest.
- Introduces refinancing for private loans (previously unavailable federally) and caps all new/refinanced rates at 5% (current rates can reach 8.05% for undergrads).
- Expands Pell to Dreamers and graduates; automates IDR enrollment to prevent defaults.
Potential Impacts
- On Citizens/Students: Lowers barriers to college by boosting grants (could cover full tuition at many public schools), reducing monthly payments (IDR at 5-10% of income vs. higher fixed amounts), forgiving debt faster for public servants (e.g., teachers, nurses), and cutting long-term costs via no capitalization and low rates. May increase enrollment among low-income, immigrant, and adult learners; eases default consequences for credit and finances.
- On Government Agencies: U.S. Department of Education faces higher upfront costs (mandatory Pell funding, subsidies, refinancing) but potential savings from defaults dropping (via easier rehab/IDR). Requires new systems (e.g., PSLF portal, IRS data matching). IRS and Treasury assist with income/interest data.
- On International Relations: Minimal direct impact, though expanded aid for Dreamers could indirectly support U.S. immigration policy by aiding integration of long-term residents.
- Broader Economy: Could reduce student debt burden ($1.7 trillion nationally), boosting spending and workforce entry; increases federal spending (estimated $300-500 billion over 10 years for Pell/loans, per similar proposals).
Main Stakeholders Affected
- Students and Borrowers: Primary beneficiaries, especially low-income undergrads, graduates, public service workers (e.g., teachers, social workers), and Dreamers; also older borrowers with high-rate legacy loans.
- Higher Education Institutions: Gain from increased enrollment and Pell funds; must update academic progress policies and provide disclosures.
- Public Service Employers: Easier PSLF certification benefits nonprofits, governments, and schools in recruiting/retaining staff.
- Loan Servicers and Lenders: Federal servicers handle more automation/refinancing; private lenders lose refinanced loans but gain reporting requirements.
- Taxpayers and Government: Bear costs of expanded aid and forgiveness; benefits from reduced defaults and economic growth.
- Undocumented/Immigrant Communities: Dreamers access federal aid without citizenship.
Notable Legal, Constitutional, or Political Implications
- Legal: Relies on existing congressional authority over federal spending (e.g., Appropriations Clause); expands executive discretion in IRS data use (under tax code Section 6103) and eligibility rules, potentially inviting lawsuits on privacy or implementation. Aligns with prior expansions (e.g., DACA via memo references) but codifies Dreamer aid, reducing reliance on executive action.
- Constitutional: No major challenges anticipated; promotes equal protection by aiding underserved groups (e.g., low-income, immigrants) without discriminating. Increases federal role in education financing, consistent with spending power.
- Political: Shifts toward progressive reforms (e.g., debt relief, immigrant inclusion) amid debates on affordability; could face opposition over costs (adding to deficit) or favoritism (e.g., private loan refinancing). Builds on Biden-era changes but simplifies via two-plan system; requires bipartisan budget reconciliation for mandatory funding. May influence 2026 elections by addressing voter concerns on debt (43 million borrowers affected).
This summary was generated by AI and may contain inaccuracies. Refer to the official source document for the authoritative text.
Sponsor
Rep. Scott, Robert C. "Bobby" [D-VA-3]
Cosponsors (26)
Rep. Subramanyam, Suhas [D-VA-10], Rep. Underwood, Lauren [D-IL-14], Rep. Moore, Gwen [D-WI-4], Rep. Thanedar, Shri [D-MI-13], Rep. McClellan, Jennifer L. [D-VA-4], Rep. Carson, André [D-IN-7], Rep. Davis, Danny K. [D-IL-7], Rep. Ansari, Yassamin [D-AZ-3], Rep. Fields, Cleo [D-LA-6], Rep. Garamendi, John [D-CA-8], Rep. Bonamici, Suzanne [D-OR-1], Rep. Williams, Nikema [D-GA-5], Rep. Castro, Joaquin [D-TX-20], Rep. Wilson, Frederica S. [D-FL-24], Del. Norton, Eleanor Holmes [D-DC-At Large], Rep. Tonko, Paul [D-NY-20], Rep. Kennedy, Timothy M. [D-NY-26], Rep. Evans, Dwight [D-PA-3], Rep. Chu, Judy [D-CA-28], Rep. Walkinshaw, James R. [D-VA-11], Rep. Grijalva, Adelita S. [D-AZ-7], Rep. Adams, Alma S. [D-NC-12], Rep. Green, Al [D-TX-9], Rep. Simon, Lateefah [D-CA-12], Rep. Lynch, Stephen F. [D-MA-8], Rep. DeSaulnier, Mark [D-CA-10]
Recent Actions
- 2025-08-01: Referred to the Committee on Education and Workforce, and in addition to the Committee on the Budget, for a period to be subsequently determined by the Speaker, in each case for consideration of such provisions as fall within the jurisdiction of the committee concerned.
- 2025-08-01: Referred to the Committee on Education and Workforce, and in addition to the Committee on the Budget, for a period to be subsequently determined by the Speaker, in each case for consideration of such provisions as fall within the jurisdiction of the committee concerned.
- 2025-08-01: Introduced in House
- 2025-08-01: Introduced in House
Bill Versions
- Lowering Obstacles to Achievement Now Act — issued 2025-08-01 — PDF (141 pages)