WASHINGTON — Federal student loan borrowers have only a few days left to lower their interest rate by 1%.
The U.S. Department of Education announced in July that borrowers who enroll in automatic payments can receive a 1% interest rate reduction. The new discount increases the previous 0.25% rate cut.
Borrowers who enroll in auto pay by Sept. 30, 2026, or who are already enrolled, will receive the discount through June 30, 2028, according to the agency.
The rate discount is part of a broader effort by President Donald Trump’s administration to simplify student loan repayment and encourage more borrowers to use auto pay. Enrollment in auto pay has dropped sharply in recent years. More than 80% of borrowers in active repayment used auto pay before the COVID-19 pandemic, the department said. As of July 1, just 40% were enrolled.
How to get the 1% interest rate discount on student loans
The reduction covers all Federal Direct Loans issued after July 1, 2012, including loans held by students and parents.
Borrowers who are not yet enrolled must log into their loan servicer’s website, choose “auto pay” from the menu and provide their bank account information. Those already enrolled do not need to take any action because servicers will automatically apply the additional rate reduction.
Borrowers in default must first log into StudentAid.gov, consolidate eligible loans and apply for a new repayment plan before enrolling in auto pay.
You must stay enrolled in auto pay to keep the reduced rate.
Remaining enrolled in auto pay also helps borrowers maintain access to other benefits, including Public Service Loan Forgiveness, which discharges certain loans after 120 qualifying on-time payments, and features of the new RAP plan, which matches on-time payments to prevent interest from accruing.
Two new repayment plans — the income-driven Repayment Assistance Plan (RAP) and the Tiered Standard repayment plan — also became available July 1 under the Working Families Tax Cuts Act.
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