There is an old saying that everything before the word “but” can safely be ignored.
I have written extensively—and critically—about the student-loan changes enacted in 2025, including RAP’s payment structure, marriage penalties, lack of inflation indexing, and the increased financing burden placed on some professional students.
BUT two wrongs do not make a right.
The Student Loan Interest Elimination Act of 2026 (H.R. 8045/S. 4169), introduced in the House by Representative Joe Courtney (D-CT) and in the Senate by Senator Peter Welch (D-VT), would make federal student loans permanently interest-free.
The bill would apply zero interest to existing and future federal Direct Loans, allow certain older loans to be refinanced at zero percent, preserve access to RAP, and increase and eventually index federal borrowing limits.
It would also create an Education Affordability Trust Fund, into which federal student-loan repayments would flow. The fund would invest those resources and use the earnings to help finance student lending and potentially other higher-education programs.
Student borrowers are not a homogeneous group. Some genuinely struggle to make their payments; others have ample ability to repay. A universal zero-percent rate gives the same subsidy to both. With enormous federal borrowing and many competing public needs, why subsidize borrowers who do not need the assistance?
More importantly, zero interest changes behavior. It encourages borrowers to borrow more, borrow even when they could use their own resources, and repay as slowly as permitted. Under RAP, borrowers may also have incentives to reduce AGI, lower required payments, and keep debt outstanding for decades, potentially ending in discharge. These actions are rational responses to the incentives the legislation creates.
The Trust Fund raises a broader problem. Money is fungible and federal resources are scarce. Yet the bill would earmark all student-loan repayments for higher education and contemplates a fund that could eventually exceed $500 billion. Those resources would therefore receive special protection rather than compete with health care, climate change, hunger, deficit reduction, and other public priorities.
That choice is especially difficult to justify when the underlying program provides unlimited zero-interest lending over the life of the loan, weakening borrowers’ incentives to borrow cautiously or repay quickly. Good public policy should address genuine problems at the lowest reasonable cost. This proposal instead combines an enormous earmark with a student-loan policy that largely removes incentives to economize.
I have proposed a different approach in my Kindle paper, A Third-Party Tax Reconciliation Approach to Student Debt: Front-Loaded Relief, Faster Principal Reduction, Fairer RAP Rules, and a Durable Endpoint for Long-Term Debt. The basic principle is to provide the most help when borrowers are most likely to need it—at the beginning of their careers.My proposal provides a temporary period of zero interest, so early payments go entirely toward reducing principal, while preserving the incentive to borrow less and repay faster because a smaller balance always means lower future payments.
The proposal also rewards successful repayment. Borrowers who make payments on time for several years and refinance into the private market would receive a reduction in their remaining federal balance. RAP would remain available as a safety net for borrowers who genuinely need income-based repayment, but the system would not encourage borrowers to enter RAP unnecessarily or remain in federal debt for decades.
Finally, I would not simply discharge unpaid balances after 20 or 30 years. After 20 years, qualifying long-term debt would instead become interest-free and be administered through the IRS rather than the Department of Education. The objective is straightforward: help borrowers when help is most valuable, reward repayment, preserve incentives to borrow carefully, and provide a humane endpoint for borrowers who still have debt after many years.
Congress already has a less extreme alternative. The bipartisan Lawler-Luna-Moskowitz bill would reduce federal student-loan interest to 2 percent rather than zero. I prefer that approach to permanent zero-interest lending because it provides substantial relief while preserving some incentive to borrow less and repay faster.
I would go further toward targeted relief. My proposal provides zero interest when borrowers are starting their careers, rewards successful repayment, preserves principal repayment rather than forgiveness, and provides limited long-term protection after 20 years. My proposal has not received a budget score from the Congressional Budget Office, but I believe this approach creates strong incentives for quick repayment and will prove less costly to taxpayers. The principle is simple: help borrowers when they need it most while limiting costs to taxpayers.