The House Appropriations Committee approved a fiscal year 2027 spending bill on June 9, 2026, that would eliminate subsidized federal student loans for new undergraduate borrowers starting July 1, 2027. If it becomes law, students taking out their first loan after that date would owe interest on their debt from day one — even while sitting in class. The bill funds a $50 increase in the maximum Pell Grant by cutting roughly $16 billion in loan subsidies over a decade. It is not yet law.

Subsidized federal student loans have been one of the most valuable benefits in the federal student aid system: the government covers your interest while you're enrolled at least half-time, during your grace period after leaving school, and during approved deferment. A bill moving through the House would end that for future borrowers.

On June 9, 2026, the House Appropriations Committee approved its fiscal year 2027 Labor, Health and Human Services, and Education spending bill. A key provision would permanently eliminate new Direct Subsidized Loans for undergraduate students beginning July 1, 2027.1

What Subsidized Loans Are — and Why the Difference Matters

Federal student loans come in two types: subsidized and unsubsidized. Both carry the same interest rate. The difference is who covers the interest while you're in school.

With a subsidized loan, the federal government pays the interest that accrues while you're enrolled. When you graduate and enter your six-month grace period, you owe exactly what you borrowed — not a dollar more.

With an unsubsidized loan, interest starts accumulating the moment funds are disbursed. If you borrow $5,500 at the current undergraduate rate and take four years to finish your degree, you'll owe substantially more than $5,500 before you make a single payment. That extra interest gets added to your principal through a process called capitalization — and then you pay interest on the larger balance for the life of the loan.

The House bill would keep unsubsidized loans in place. But students who begin borrowing on or after July 1, 2027 would lose access to the subsidized version.2

This is a single House committee bill — not enacted policy. It still needs to pass the full House, survive the Senate, and be signed by the president. The Senate has historically pushed back on cuts to campus-based student aid. But it signals a clear direction from House leadership.

The Trade-Off: $50 More in Pell, Thousands More in Interest

The bill's stated rationale is to fund the Pell Grant. It would increase the maximum Pell Grant by $50 — from the current $7,395 to $7,445 — and use the projected savings from eliminating the loan subsidy (roughly $16 billion over ten years) to cover the program's existing funding shortfall.1

The National Association of Student Financial Aid Administrators (NASFAA) and the National College Attainment Network (NCAN) both flagged the trade-off as unfavorable. The interest subsidy on a subsidized loan is worth far more than $50 per year to students who rely on it. Interest that doesn't accrue while you're enrolled is interest you never have to repay — and eliminating that protection shifts real costs onto borrowers who can least afford it.13

$16 billion

Who Would Be Protected

The bill includes a grandfathering provision, but it's narrower than it might appear.

To retain access to subsidized loans after July 1, 2027, you must have already received a Direct Loan for your current program of study before that date. Students who start college in fall 2026, receive a subsidized loan for that academic year, and remain in the same program through graduation would likely be protected.2

Students who start college in fall 2027 or later would not be eligible for subsidized loans under this proposal. Transfer students enrolling in a new program after July 1, 2027 would also lose eligibility — even if they previously received subsidized loans for a prior program or institution.

The Rest of the Cuts

Subsidized loans are not the only student aid target in this bill. According to the National Association for College Admission Counseling (NACAC), the House proposal would also:4

  • Cut Federal Work-Study funding by 26.2 percent — a $322 million reduction bringing total funding to $908 million
  • Cut the Federal Supplemental Educational Opportunity Grant (FSEOG) by 40 percent — a $364 million reduction bringing total funding to $546 million
  • Eliminate programs supporting minority-serving institutions including those serving Hispanic, Asian American, Native Hawaiian, Pacific Islander, and Native American student populations

Work-Study funds part-time campus jobs for students with financial need. FSEOG provides supplemental grants — on top of Pell — to undergraduates with the greatest demonstrated need, typically students at or near zero expected family contribution.

Where This Bill Goes Next

The House spending bill must pass the full House, clear the Senate, and be reconciled in conference committee before it can become law. Historically, the Senate has resisted cuts of this scale to Work-Study and campus-based aid programs.

But the direction is clear: House leadership is willing to trade the subsidized loan interest benefit and campus-based programs for a modest increase in the headline Pell Grant number. Whether that trade survives the rest of the appropriations process will determine whether students entering college in 2027 and beyond pay more to borrow federal money than every class before them.

What Students and Families Should Do Now

If you're enrolled or starting college this fall, your access to subsidized loans is not immediately at risk. But the landscape for borrowing is shifting fast — between the July 1 loan cap changes already in effect and a House budget that proposes further reductions, understanding your aid package has never been more important.

Start with the basics: our guide to federal vs. private student loans explains the full difference between subsidized, unsubsidized, and private options. If you're building a borrowing strategy, see how much student loan debt is too much to understand the income-to-debt ratios worth keeping in mind before you sign.

For context on how this fits into the broader federal budget picture, see our April coverage of the Trump FY2027 budget proposal, which took a different approach to the same programs.

Footnotes

  1. National Association of Student Financial Aid Administrators (NASFAA). (2026, June). House FY 2027 Budget Proposal Would Cut Campus-Based Aid, Increase Max Pell, and Eliminate Subsidized Loan Funding. NASFAA. https://www.nasfaa.org/news-item/39083/House_FY_2027_Budget_Proposal_Would_Cut_Campus-Based_Aid_Increase_Max_Pell_and_Eliminate_Subsidized_Loan_Funding ↩ ↩2 ↩3

  2. The College Investor. (2026, June). House Spending Bill Would Eliminate Subsidized Student Loans To Pay For Pell. The College Investor. https://thecollegeinvestor.com/81934/house-spending-bill-would-eliminate-subsidized-student-loans-to-pay-for-pell/ ↩ ↩2

  3. National College Attainment Network (NCAN). (2026, June). House FY27 Spending Bill Invests in Pell But Takes Axe to Loans. NCAN. https://www.ncan.org/Web/News/House-FY27-Spending-Bill-Invests-in-Pell-But-Takes-Axe-to-Loans.aspx ↩

  4. National Association for College Admission Counseling (NACAC). (2026, June 8). House FY 2027 Spending Bill Preserves Some College Access Investments While Reshaping Student Aid and Institutional Support. NACAC. https://www.nacacnet.org/advocacy-and-policy-update-house-fy27-bill-analysis-june-2026/ ↩