H.R. 1739 — Higher Education Reform and Opportunity Act

This section terminates authority to make Federal Direct Loans under part D of title IV of the Higher Education Act of 1965 (20 U.S.C. 1087a et seq.)—other than Federal Direct simplification loans under new section 460A—first for new borrowers with disbursements after June 30, 2026, and fully after September 30, 2030, while allowing certain existing borrowers (i.e., those with outstanding balances as of July 1, 2026) to receive non-simplification loans through September 30, 2030, for undergraduate, graduate/professional, or dependent student enrollment matching their prior loans. (Borrowers who take a simplification loan before September 30, 2030, lose eligibility for non-simplification loans.) No funds may be expended after September 30, 2030, for non-simplification loans with first disbursements after that date. The section establishes the Federal Direct simplification loan program, available beginning July 1, 2026 (except as limited by section 451(e)), as the sole Direct Loan option going forward. (As background, Federal Direct Loans currently provide subsidized and unsubsidized Stafford loans to students and PLUS loans to graduate/professional students and parents to finance postsecondary education, with variable interest rates, flexible limits, and grace/deferment periods; this provision replaces them with a single loan type featuring fixed terms.) Federal Direct simplification loans (1) accrue interest from disbursement; (2) carry annual interest rates, set each June 1 for the following award year, equal to the lesser of the 10-year Treasury note high yield plus 2.05% (cap 8.25%) for undergraduates or plus 3.6% (cap 9.5%) for graduate/professional students; (3) have maximum annual loan amounts of $7,500 (dependent undergraduates), $15,000 (independent undergraduates), or $18,500 (graduate/professional students) and aggregate limits of $30,000, $60,000, or $74,000, respectively; and (4) require repayment over 15 years (undergraduates) or 25 years (graduate/professional), beginning after 125% of the program's normal completion time or upon withdrawal.

This section (1) excludes Federal Direct simplification loans from loan rehabilitation under section 455(d) and from income-contingent repayment plans under section 455(e); and (2) eliminates loan forgiveness under the Public Service Loan Forgiveness program (section 455(m)) (i.e., forgiveness of remaining Direct Loan balances after 120 qualifying payments for public service employees) and the Teacher Loan Forgiveness program (section 493C) (i.e., up to $17,500 forgiveness for teachers in low-income schools after five years) for loans made on or after July 1, 2026. For borrowers whose first loan for a program of study was made before July 1, 2026, the Secretary may forgive balances on subsequent loans for the same program made before July 1, 2030, or during completion of the program, whichever is earlier. (Thus, the changes effectively phase out forgiveness for new programs of study starting July 1, 2026, and fully by July 1, 2030.)

This section revises the definition of an institution of higher education for purposes of title IV student assistance programs (20 U.S.C. 1002(a)(1)) by inserting a new subparagraph (B)—redesignating current subparagraphs (B) and (C) as (C) and (D)—to include institutions providing postsecondary education, postsecondary apprenticeship programs, or postsecondary education courses or programs offered by institutions of postsecondary education, nonprofit organizations, or for-profit organizations or businesses, if accredited by an authorized accreditation authority in a state with an alternative accreditation agreement with the Secretary, as described in new section 498C. (As background, title IV programs provide federal grants, loans, and work-study to students attending eligible institutions of higher education.) It further establishes a state alternative accreditation system (new section 498C in part H of title IV), under which a state may submit a plan to the Secretary to designate authorized accrediting entities (e.g., state agencies or industry-specific accreditors) to accredit such providers—including those culminating in certifications, credentials, or degrees, or providing credits toward them—with standards for initial and ongoing accreditation, appeals processes, public disclosure of information (including job placement rates), and state-defined outcome measures in lieu of certain federal requirements on learning outcomes, instructional time, and credit or clock hours. The Secretary must review and approve a compliant plan within 30 days, notifying the state and Congress and making the decision public.

This section requires each institution of higher education participating in a Title IV program (i.e., federal student financial aid programs such as Pell Grants and Direct Loans) to annually publish on its website, and in an alternative format, specified information for the most recent fiscal year available—including (1) percentages and numbers of students receiving federal, state, and institutional grants and loans; (2) student enrollment status by first-time status and attendance intensity; (3) program completion and transfer rates, average completion time, rates of continuing to higher education, post-graduation employment rates at 2, 4, and 6 years, and median earnings at 5, 10, and 15 years after initial enrollment or graduation, all disaggregated by program of study; and (4) average federal student loan debt upon graduation or departure, plus default and non-repayment rates disaggregated by enrollment status, completion status, and program of study—and makes compliance a condition of Title IV participation. The section requires such publications to comply with the Family Educational Rights and Privacy Act (FERPA, 20 U.S.C. 1232g); prohibits federal employees or institutions from using the data against individuals; and directs the Secretary of Education to establish penalties for violations including monetary fines and imprisonment for up to five years. This section further directs the Government Accountability Office (GAO) to study the published data and submit a report to congressional committees by October 1 of the fourth fiscal year after enactment.

This section requires each institution participating in federal student aid programs to pay an annual default rate fine equal to the applicable percentage—15% minus the average U.S. unemployment rate, as determined by the Secretary of Labor—of outstanding federal student loans issued for attendance at the institution, where outstanding loans are those not in regular on-time payments (i.e., at least the fixed monthly amount to repay within the borrower's repayment plan term). It provides a $400 credit per fiscal year for each graduate who received a Federal Pell Grant while enrolled at the institution that year; directs the Secretary to grant institutions flexibility to counsel students on federal aid, including awarding less than the maximum eligible amount if the institution's tuition, room, and board costs are lower; and authorizes institutions to require Direct Loan borrowers to receive financial counseling—including financial literacy counseling—at or prior to loan disbursement.