LOAN Act

Increased Pell Grant Amounts: The bill increases the maximum Federal Pell Grant award starting at $10,000 for the 2026-2027 award year and scaling up to $14,000 in subsequent years (Section 101).

Support for Low-Income Students: Students with a student aid index of less than zero would be eligible for a Federal Pell Grant that exceeds the total maximum award by the amount their index is below zero (Section 102).

Expanded Eligibility for Dreamer Students: The bill defines "Dreamer student" to include individuals who are not citizens or nationals but meet specific criteria, such as earning a high school diploma or serving in the uniformed services, making them eligible for federal aid (Section s 103).

Increased Grant Duration: The total number of semesters of Federal Pell Grant eligibility is increased from 12 to 18 (Section 104).

Expanded Grant Access for Graduate Students: Graduate and postbaccalaureate students may become eligible to receive Federal Pell Grants under specific conditions (Section 106).

Subsidized Loans for Graduate Students: Beginning July 1, 2026, graduate and professional students may be eligible for subsidized Federal Direct Stafford loans at covered institutions (Section 201).

Loan Repayment Flexibility: The bill creates new repayment options, including an Income-Driven Repayment Plan and a fixed repayment plan (Section 212).

Debt Relief through Public Service: The bill aims to streamline Public Service Loan Forgiveness, including a "buyback" process that allows borrowers to pay to gain qualifying monthly payments (Section 231).

Credit Score Recovery: For borrowers who repay defaulted loans in full or consolidate them, the Secretary is required to request that consumer reporting agencies remove the default from their credit history (Section s 241 and 242).

Affordable Loan Rehabilitation: A "Default Reduction Program" allows borrowers to rehabilitate defaulted loans through nine reasonable and affordable monthly payments (Section 243).

Elimination of Interest Capitalization: By preventing interest from being added to the principal balance, borrowers will not see their debt grow through capitalization on Federal PLUS loans (Section 301(a)), Unsubsidized Stafford Loans (Section 301(e)), or during periods of deferment and forbearance (Section 301(g)).

Lower Interest Rate Caps: For new loans issued on or after July 1, 2026, interest rates for Stafford, Unsubsidized, and PLUS loans are capped at the lesser of 5.0 percent or the 10-year Treasury note high yield (Section 401(a)).

Debt Refinancing Opportunities: The bill establishes a program allowing qualified borrowers to refinance existing federal loans into new loans with fixed interest rates (Section 402(a)).

Private Loan Refinancing: Certain qualified borrowers with eligible private education loans can refinance those loans into Federal Direct Refinanced Private Loans (Section 403(b)).

Protection for Consolidation Loans: Interest on reissued consolidation loans will only accrue on the percentage of the loan equal to the original unpaid principal divided by the total loan amount (Section 301(i)).

Ineligibility due to Fraud: Borrowers may be found ineligible for loans, and required to repay principal and interest if they provided false or erroneous information or were convicted of crimes involving fraud to obtain funds (Section 214).

Default Consequences: If a borrower defaults, the entire unpaid balance and accrued interest become immediately due and payable, and the Secretary may take actions such as wage garnishment or lawsuit (Section 204).

Repayment Plan Limitations: Under the new rules, if a borrower fails to provide the necessary annual income information, they may be removed from the Income-Driven Repayment Plan and placed on a fixed repayment plan (Section 212).

Loan Cancellation Denial: Borrowers seeking loan cancellation through public service may be denied if they do not meet specific requirements, which may result in the resumption of loan collection (Section 231).

Exclusion from Forgiveness Programs: Borrowers who choose to refinance their private loans into the Federal Direct Refinanced Private Loan program will be ineligible for service-related loan forgiveness or public service loan cancellation plans (Section 403(e)).

Refinancing Limits: The ability to refinance federal loans is limited to "qualified borrowers," defined as those holding loans with an interest rate exceeding 5 percent (Section s402(e)).

Specific Requirements for Private Loan Refinancing: To qualify for private loan refinancing, borrowers must have been current on payments for the six months prior to their application and must be in good standing (Section 403(b)).