Federal student loan borrowers who enroll in automatic payments will receive a 1% interest rate reduction starting July 1, 2026, the U.S. Department of Education announced June 18, marking a significant expansion of the existing auto-pay discount for student debt.
The new reduction represents a four-fold increase from the current 0.25% discount borrowers get for enrolling in auto-pay. Borrowers who enroll by September 30, 2026, or who are already enrolled, will benefit from the rate cut through June 30, 2028, according to the Department of Education.
Borrowers already using auto-pay will receive an additional 0.75 percentage point reduction automatically—they need take no action. Those not yet enrolled must log into their student loan servicer account and select auto-pay from the navigation menu, then enter their bank account information.
The benefit applies to Federal Direct Loans originated after July 1, 2012, including student and parent borrowers. Borrowers in default must first consolidate their loans and choose a legal repayment plan before they can enroll in auto-pay and qualify for the reduction.
Under Secretary of Education Nicholas Kent said the initiative aims to boost repayment rates and improve the health of the federal student loan portfolio. “The Trump Administration is making student loan repayment easier than ever, and borrowers should not wait to take advantage of this temporary interest rate reduction,” he said in the announcement.
Auto-pay enrollment has declined sharply in recent years. Prior to the COVID-19 pandemic, more than 80% of student loan borrowers in active repayment were enrolled in auto-pay, which ensures borrowers make monthly, on-time payments. Today, only 40% are enrolled, according to the Department of Education.
The interest rate reduction is temporary and limited to the two-year window. Borrowers must remain enrolled in auto-pay to continue benefiting from the reduction. If auto-pay is removed due to three consecutive failed payments, the rate reduction is lost.
This auto-pay incentive arrives alongside broader changes to federal student loan repayment. On July 1, two new repayment plans will become available: the income-driven Repayment Assistance Plan (RAP) and the Tiered Standard repayment plan. Under RAP, borrowers who make full, on-time monthly payments will be shielded from runaway interest and make regular progress toward reducing principal balances on their loans.
Sources
- U.S. Department of Education — Official press release announcing the 1% interest rate reduction for auto-pay borrowers, the prior 0.25% discount, enrollment deadline, and applicability to loans originated after July 1, 2012.
- NPR — Reporting on the rate cut duration (July 1, 2026 through June 30, 2028) and confirmation that borrowers already enrolled do not need to take action.
- The Washington Post — Coverage of the temporary nature of the discount and potential savings for borrowers.
- CNBC — Reporting on the temporary reduction of 1 percentage point on interest rates for auto-pay enrollees.
- Inside Higher Ed — Confirmation that the prior auto-pay reduction was 0.25 percentage points and the new rate is a full percentage point.
