Game Changer Student Loan Bill Would Slash Interest Rates To 2%

Forbes

09-04-2025

A new bipartisan proposal in Congress aims to slash interest rates on federal student loans to just 2%, a dramatic drop from the 6% to 9% rates that most borrowers have today. The bill – officially titled the Affordable Loans for Students Act – was introduced in March 2025 by Rep. Mike Lawler (R-NY) alongside Rep. Anna Paulina Luna (R-FL) and Rep. Jared Moskowitz (D-FL)​. This Republican-led effort to cap student loan interest rates at 2% marks a rare moment of bipartisanship on an issue often known for partisan divides. If enacted, the legislation would retroactively adjust interest rates on existing federal student loans to 2% and automatically refinance borrowers' loans to the new rate without requiring them to opt in.
'This is a game-changer for millions of Americans looking to build a better future without the weight of overwhelming student loan debt holding them back," said Lawler in a press release. "By adjusting the rate to 2% 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.' At a time of great uncertainty about federal student loans and student loan forgiveness, the bill may also point to potential solutions that could gain support across the political spectrum. While the bill would be a game-changer, its odds of passing are still quite uncertain.
Under the Affordable Loans for Students Act, all federal student loans, including undergraduate, graduate, PLUS, and federal consolidation loans, would carry a 2% interest rate. Notably, this cap isn't just for new loans – it also applies retroactively to existing loan balances. That means current borrowers would see their interest rates on federal loans automatically lowered to 2%, significantly reducing future interest accrual. The Department of Education is authorized to automatically refinance and modify loans so borrowers don't have to navigate any paperwork to get the lower rate.
Even borrowers with older federal loans not held by the Department could benefit: the bill allows those loans to be consolidated into Direct loans to access the 2% rate​. Borrowers with multiple loans could consolidate them if needed to streamline the rate adjustment. In short, the legislation takes a comprehensive approach to ensure every federal student loan is capped at 2% interest, aiming to make student loan repayment more manageable for all borrowers.
The bill's sponsors emphasize that this move could substantially cut costs for borrowers. For example, a borrower with $30,000 in federal student loans at a 6.5% interest rate today might pay around $345 per month on a standard 10-year plan, totaling roughly $41,000 paid over the life of the loan. If the interest rate were lowered to 2%, that monthly payment could drop to about $275-280, with a total repaid of around $33,000 – saving roughly $8,000 in interest over time. Those savings stay in borrowers' pockets, effectively making higher education debt less costly in the long run.
'High interest rates add years, sometimes even decades, to the time it takes for student loans to be paid off," said Luna. "This is unacceptable - the federal government should not be putting strain on its students and young graduates for profit. This legislation caps and ends excessive interest rates, expanding access to college degrees and making American workers even more competitive in the modern workforce,' she added. Lowering interest is a way to help graduates pay down their principal faster instead of watching balances swell with interest each year.
This push to cap student loan interest rates at 2% comes amid a heated debate over how to address the nation's $1.6 trillion student debt load. In contrast to high-profile efforts at student loan forgiveness—which have largely been championed by Democrats and met opposition from Republicans—lowering interest rates has emerged as a potential middle-ground solution.
The fact that this initiative is bipartisan could be a key part of its political appeal. Lawler, the bill's author, is a first-term Republican known for crossing the aisle (the press release for the bill notes that he is considered one of the most bipartisan members of Congress). Teaming up with Moskowitz, a Democrat, and Luna, a conservative Republican, potentially signals an attempt to build a coalition that spans the political spectrum on the issue of student loan interest. This could improve the bill's odds in the GOP-controlled House of Representatives, as it aligns with Republican interests and attracts some Democratic support. Indeed, the National Association of Student Financial Aid Administrators and other education groups applauded the act's introduction. NASFAA called it an "equitable approach that would help ease the burden of student loan debt on current and future borrowers"​
However, the bill's prospects remain uncertain. It's unclear how the broader Republican leadership or fiscally conservative members of Congress will view the proposal. On the one hand, reducing interest on student loans is attractive because it offers relief without canceling obligations. Indeed, similar ideas have been floated before: for instance, as a senator, Marco Rubio proposed replacing student loan interest with a one-time upfront fee, and other GOP-backed plans have sought to curb interest accrual and capitalization.
However, slashing interest to 2% across the board would entail a cost to the federal government in the form of forgone interest income. That cost might need to be covered by taxpayers or by cutting spending elsewhere, which could give fiscal hawks pause. It's also worth noting that introducing the bill in 2025 is a reintroduction; Lawler unveiled a similar plan in late 2024 with a 1% interest cap​. Adjusting the target rate to 2% and bringing a Democrat on board this time may be an attempt to make it more politically palatable.
If enacted, the 2% interest cap could be a game-changer for student loan borrowers, fundamentally altering the cost calculus of repaying federal loans. The change would be felt almost immediately through slower interest accumulation for current borrowers and lower monthly payments. Many borrowers who have been in repayment for years might finally see their loan balances decrease more quickly instead of barely denting the principal. This is especially relevant for those on income-driven repayment plans or those who paused payments – under higher rates, interest can balloon during periods of non-payment, but at 2%, the growth would be far more contained. As Karen McCarthy of NASFAA noted, lowering rates to 2% "puts forth an equitable approach" to ease the debt burden and is "an important step in promoting access to affordable postsecondary education."​