Federal Student Loans Get a Makeover: New 'Simplification Loans' Ditch Forgiveness, Shift Power to States

The "Higher Education Reform and Opportunity Act" aims to shake up how students pay for college, and it's a mixed bag. Here's the breakdown:

Loan Landscape Overhaul

The bill kills off several existing federal student loan programs, replacing them with "Federal Direct Simplification Loans" starting July 1, 2026 (SEC. 101). If you're already paying back loans, you're grandfathered in unless you take out one of these new loans. New borrowers after June 30, 2026, only get the "Simplification" option. The big catch? These new loans are not eligible for forgiveness programs (SEC. 102).

• Interest Rates: Capped, but still potentially high. Undergrad rates are the 10-year Treasury note yield plus 2.05%, but no higher than 8.25%. Graduate loans are the Treasury yield plus 3.6%, capped at 9.5%. Interest accrues from day one.
• Loan Limits: Dependent undergrads: $7,500/year, $30,000 total. Independent undergrads: $15,000/year, $60,000 total. Grad students: $18,500/year, $74,000 total.
• Repayment: 15 years for undergrads, 25 for grads. You start paying after 125% of your program's normal length, or 6 months after leaving school.
• Example: Say you're in a 4-year program. You wouldn't start repayment until 5 years (125% of 4 years) or 6 months after you leave school, whichever comes first. No origination fees, and you can pay early without penalty.

The Accreditation Game Changer

This is where things get interesting. The bill lets states create their own accreditation systems (SEC. 201). Think of accreditation as a school's "seal of approval." Right now, the federal government sets a lot of the rules. This bill says, "States, you do you." States submit a plan, and if it meets basic requirements, the Secretary of Education has 30 days to approve it.

• What this could mean: States might experiment with new ways to approve schools, maybe focusing on job placement rates or apprenticeships. It also means standards could vary wildly from state to state. A school approved in Texas might not be recognized in California, and vice-versa.
• States will have to report every three years on the number and percentage of students completing programs; obtaining certifications, credentials, or degrees; or obtaining credits.

Show Me the Numbers: Transparency Time

Colleges and universities will have to publish a lot more data (SEC. 301). This includes:

• How many students get grants and loans.

• Graduation and transfer rates.

• Average time to complete a degree.

• Employment rates 2, 4, and 6 years after graduation, broken down by program.

• Median earnings 5, 10, and 15 years after starting, also by program.

• Average student loan debt and default rates.

• Why this matters: You'll be able to see, for example, if that expensive coding bootcamp actually leads to high-paying jobs, or if graduates are drowning in debt. This information has to be on the school's website and in another format. They can be penalized if they are found in violation, including up to 5 years in prison.

Schools on the Hook: Default Rate Fines

If too many students from a particular school default on their loans, the school pays a fine (SEC. 401). The fine is 15% of the total loans in default, minus the national unemployment rate, times the total amount of loans not being paid on time.

• Example: Let's say the unemployment rate is 5%. The school's penalty rate is 10% (15% - 5%). If $1 million in loans from that school are in default, the school owes $100,000 (10% of $1 million).
• The catch: There's a $400 credit for every graduate who received a Pell Grant (aid for low-income students). This is supposed to incentivize schools to support low-income students.
• The bill also lets schools counsel students to take out less than the maximum loan amount, and even require extra financial literacy counseling.

The Big Picture

This bill is a major shift. It simplifies some things but adds new complexities. It gives states more power but could create a patchwork of different standards. It demands transparency but also eliminates loan forgiveness for new borrowers. Whether it's a step forward or backward depends on how it's implemented, and how states and schools react.