The Higher Education Reform and Opportunity Act aims to significantly restructure federal student loan programs. It proposes to terminate most existing federal direct loans for new disbursements after September 30, 2030, and for new borrowers after June 30, 2026. Instead, a new system of Federal Direct simplification loans will be introduced, becoming the primary federal loan option.

These new simplification loans, available from July 1, 2026, will feature fixed interest rates tied to Treasury yields with specific caps, and interest will accrue from the date of disbursement. They will also impose strict annual and aggregate borrowing limits for undergraduate and graduate students. Repayment periods will be fixed at 15 years for undergraduates and 25 years for graduate students, with repayment beginning after 125 percent of the program's normal completion time or six months post-withdrawal.

A key provision of the simplification loans is the elimination of all loan forgiveness programs, including income-contingent repayment and public service loan forgiveness. For loans made on or after July 1, 2026, the Secretary will generally be prohibited from canceling outstanding balances, though a limited exception exists for continuing students in the same program whose first loan was prior to this date.

The bill also introduces substantial accreditation reform by allowing states to establish alternative accreditation systems. These state-approved systems can qualify a broader range of postsecondary education providers, including apprenticeships and specific courses offered by non-profits or for-profit businesses, for federal Title IV funding. States must submit detailed plans outlining their accreditation standards, processes, and public reporting requirements.

Under these alternative systems, states can define their own criteria for learning outcomes, instructional time, and credit hours, deviating from traditional federal requirements. Approved state plans are valid for five years, and participating states must regularly report on student completion rates, degree attainment, and third-party verification of data. Institutions accredited under these state systems would be exempt from certain existing federal accreditation and academic year requirements.

To enhance transparency in higher education, the legislation mandates that all institutions participating in Title IV programs annually publish extensive data on their websites. This includes detailed information on the types of financial aid students receive, various student enrollment statuses, and critical student success metrics.

Institutions must report on student completion rates, transfer rates, average time to completion, and progression to higher education. Crucially, they must also publish employment rates and median earnings of former students at various intervals post-graduation or enrollment, disaggregated by program of study. Additionally, institutions must disclose average federal student loan debt, default rates, and non-repayment rates, with strict privacy protections for individual student data.

Finally, the bill introduces school accountability for student loans by requiring institutions to pay an annual default rate fine. This fine is calculated based on a percentage of outstanding loans for which regular on-time payments are not being made, adjusted by the national unemployment rate. Institutions would receive a $400 credit for each Pell Grant recipient who graduates, and are granted flexibility in counseling students on federal financial aid, including the option to award less than the maximum eligible amount.