Student Loan Forgiveness? Rate Slashes in New GOP Plan

New legislation from Congress would slash interest rates on all federal student loans—even PLUS loans—down to just 2 percent.

The bipartisan Affordable Loans for Students Act (ALSA) from Rep. Mike Lawler (R-NY) would cut interest rates on existing and new Direct Loans to only 2 percent from the 6.5 to 9 percent range most borrowers currently pay at the time of this writing in April 2025. That works out to a 69 percent decrease from the rate undergraduates pay, along with a 78 percent decrease from the premium PLUS loan rate paid by graduate students and parents.

Several higher education associations have already endorsed Lawler’s proposal introduced on March 10. These groups include the most influential association of universities in the United States, the American Council on Education (ACE). They also include the American Association of Colleges and Universities (AAC&U), along with the National Association of Student Financial Aid Administrators (NASFAA).

Two cosponsors from Florida also signed on. Democratic Congressman Jared Moskowitz of Miami made this a bipartisan effort; that a Democrat would sign on so early isn’t surprising given that Georgetown University’s McCourt School of Public Policy ranked Lawler as the fourth-most bipartisan representative in the House. The other cosponsor is a high-profile Republican, Congresswoman Anna Paulina Luna from the state’s Gulf Coast region.

Representative Lawler’s unique solution addresses college affordability, a concern shared by both parties. Yet his bill doesn’t place taxpayers on the hook for bailing out borrowers. That means Lawler’s solution potentially aligns with Republican principles while also satisfying Democratic objectives for student debt relief with tangible benefits for borrowers’ finances.

Lawler is a two-term representative and a rising star in the Republican Party who’s frequently mentioned as a potential candidate for governor of New York State. After serving as a member of the State Assembly, in 2022 Lawler launched his Congressional career through a surprise upset win by a razor-thin 1,800-vote margin in southern New York’s 17th Congressional District.

North of New York City, Lawler’s district contains portions of Westchester, Rockland, Putnam, and Dutchess counties. Bordered by the Connecticut state line and wealthy suburbs like Stamford and Danbury, that area has been a traditionally liberal, Democratic stronghold. It’s also one of the most affluent areas in the United States, with a median household income of about $118,000.

However, recent gerrymandering had manipulated the electoral district’s boundaries in ways favorable to Republicans like Lawler. That made crime a hot issue in Lawler’s winning campaign against Democratic incumbent and President Clinton’s former West Wing advisor Sean Patrick Maloney; at the time, Maloney also served as the chair of the Democratic Congressional Campaign Committee.

Because Lawler holds a degree in accounting and finance from Manhattan University in New York City, it’s probably not surprising that he would want to provide borrowers with debt relief by enabling modifications to the one aspect with no mechanism for changes through the federal student loan system: interest rates. Although Lawler’s plan isn’t technically student loan forgiveness where a borrower wouldn’t have to pay back some or all of their loan’s principal, attorney Adam Minsky argues that “reducing interest rates can have tangible, meaningful impacts for borrowers that can effectively operate as a waiver—or even forgiveness—of future interest that would otherwise have to be repaid.”

“By adjusting the rate to 2 percent and doing this retroactively, we’re giving borrowers the flexibility they need to pay off their debt without unnecessary obstacles—like the outrageous additional cost post-graduation that is now synonymous with quality education,” Lawler said in a statement.

That’s right—Lawler’s bill also contains a retroactive provision for all 43.6 million current borrowers. It’s one of the bill’s strongest advantages.

Universal Low Interest Rate

The Lawler proposal would offer a single low interest rate of 2% for all borrowers. This framework simplifies the current Education Department arrangement based on three interest rate tiers offered across three product lines.

As of May 2025, most borrowers finance undergraduate degrees through Direct Subsidized and Unsubsidized Loans, and the Education Department’s Federal Student Aid division charges those borrowers 6.53 percent. FSA charges graduate and professional students 8.08 percent for Direct Unsubsidized Loans, plus charges parents and graduate or professional students 9.08 percent on Direct PLUS Loans.

With subsidized loans, the federal government pays the interest while the borrower is enrolled at least half-time, during their six-month grace period after leaving school, and during deferment periods. This means no interest accrues until borrowers start to repay their loans, which reduces their total borrowing costs.

Subsidized loans are available only to undergraduates who demonstrate financial need when they complete the FAFSA form, the Free Application for Federal Student Aid.

Automatic Retroactive Application

The bill automatically applies this lower rate to loans already in repayment, not just new ones. According to Lawler’s office, this provision aims to provide immediate relief to millions of borrowers by recalculating interest on outstanding balances, potentially saving them “tens of thousands of dollars over the life of the loan.”

Automatic Refinancing

One of the deficiencies of the amended Higher Education Act of 1965 is that it offers no refinancing pathway through the federal loan system, allowing borrowers to reduce their interest rates, which are set when the loan is taken out. Borrowers can always refinance federal loans through a private lender. However, the borrower would lose access to federal repayment programs, student loan forgiveness, and related legal protections.

An important provision of the ALSA is that it would amend the Higher Education Act to provide refinancing through the federal system. Moreover, to eliminate bureaucratic hurdles, ALSA would automatically refinance all existing federal student loans to the new 2% rate without requiring borrowers to apply, although they could always opt out.

Here’s how those provisions appear in the bill’s language:

FEDERAL DIRECT LOAN MODIFICATION.—The Secretary shall establish and implement, with respect to each borrower of eligible Federal loans held by the Secretary, procedures to modify, without any action from the borrower, the terms of such loan so that beginning on the first July 1 after the date of enactment of the Affordable Loans for Students Act, the applicable rate of interest shall be 2.0 percent on the unpaid principal balance of the loan.

Additionally, the bill would enable borrowers with non-Direct loans—such as FFEL-program loans with rates up to 9 percent under the Federal Family Education Loan program—to refinance into Direct loans so they can save money with the 2 percent rate.

Preserving Student Loan Forgiveness

Lawler’s proposal would also preserve access by borrowers to student loan forgiveness programs, such as income-driven repayment (IDR) and the Public Service Loan Forgiveness (PSLF) programs. Here’s that language in the bill:

The Secretary may adjust such terms and conditions as necessary to enable the borrower to access loan forgiveness or other benefits available to the borrower under the loan before refinancing under this subsection, in any case where such benefits are more generous than provided under a Federal Direct Consolidation Loan.

Can the Plan Reduce IDR Payments?

In short, Lawler’s proposal offers a lot of benefits. It provides a very low interest rate through fast and easy retroactive refinancing for all 43.6 million student loan borrowers. Plus the plan preserves access to student loan forgiveness programs.

However, according to student loan expert Robert Farrington, the ALSA can’t help all borrowers. Farrington says Lawler’s plan cannot reduce payments for the roughly 50 percent of borrowers enrolled in interest-driven repayment programs, although the proposal should save money for borrowers enrolled in all other programs.

Why? The reason is that IDR programs lower payments because of factors like a borrower’s discretionary income. Because the loan’s interest rate isn’t a factor in those calculations, it won’t change the monthly payment amounts in an IDR payment plan.

Currently, about half of all the borrowers in the federal student loan program are enrolled in at least one IDR program. Among the others, about a quarter are enrolled in the Parents PLUS loan program, and the remainder are enrolled in other standard plans.

Farrington says that only these non-IDR borrowers will see reduced payments through interest rate reductions. Although savings would depend on factors like how much a borrower owes, which repayment plan they’re enrolled in, and the interest rate, those savings in some cases could be substantial. For example, here’s a case he cites in his article:

As an example, imagine a borrower has $30,000 in student loans at a 6.5 percent interest rate and they’re repaying their loans over a standard, 10-year repayment plan. In this case, they would pay $341 per month on their loans over the course of 120 months. Total payments made would work out to $40,877 during that time, which means they would fork over around $10,877 in interest payments only.

What happens if we change the interest rate from 6.5 to 2 percent? That borrower’s monthly payment reduces to $276, which is actually a 19 percent decrease. Total interest decreases to approximately $3,120, a 71 percent decrease. These calculations demonstrate how changing the interest rate can significantly affect both the monthly payment and the total interest paid over the loan’s term.

Commenters on the Reddit student loan discussion forums have debated the merits of the ASLA since Representative Lawler introduced an earlier version in November 2024 during the previous congressional session. Although many folks in those groups expressed views in support of the measure, the consensus seems to be that the legislation could have trouble passing in its current form.

As long as about 22.8 million borrowers in IDR plans won’t receive lower payments from this bill, they lack an incentive to support it politically. Are there any benefits that the bill’s sponsors could offer that might win their support?

One step the ASLA’s sponsors might consider would offer those IDR borrowers a better income-driven repayment plan, such as one with lower monthly payments or a shorter timetable toward student loan forgiveness than their current choices. After all, a group of Senate Democrats just introduced one such bill that proposes a better IDR plan.

Early in April, Democratic Senators Jeff Merkley of Oregon and Tim Kaine of Virginia led more than a dozen colleagues in introducing legislation they call the Savings Opportunity and Affordable Repayment Plan, or SOAR Plan. This new proposal would expand the SAVE student loan repayment plan. Without Congress, the Biden Administration introduced the SAVE Plan through the Department of Education In 2023 to provide borrowers lower payments on a shorter forgiveness timeline than the other IDR plans. Eight million borrowers had enrolled in the SAVE Plan before Republican-led lawsuits blocked the plan starting in July 2024.

This new version proposes several modifications to the SAVE Plan. For example, it would expand enrollment to all borrowers, including those in the FFEL and Parent PLUS programs.

The Democrats’ SOAR plan isn’t likely to progress because of the GOP majority in both houses of Congress. However, a version of Lawler’s bipartisan legislation with enhancements that appeal to IDR borrowers could stand a better chance.

“I think this is an area where Republicans and Democrats can find consensus and agreement that we need to address the affordability crisis of higher ed. Low-interest student loans certainly is an avenue that we can find agreement on,” Lawler told Fox News.