The U.S. Department of Education will temporarily lower interest rates for student loan borrowers who employ the automatic payment feature. (Photo illustration via Getty Images)
WASHINGTON – The U.S. Department of Education will temporarily lower interest rates for federal student loan borrowers who have enrolled in vehicle reimbursement starting July 1, the agency said announced Thursday.
Borrowers who sign up automatic payment – the optional feature that allows a borrower to have their monthly loan payment automatically deducted from their checking or savings account – will result in a full percentage point reduction in their interest rate from July 1, 2026 to June 30, 2028.
The change means that, for example, an interest rate of 6% would fall to 5%.
Federal student loan borrowers who are currently enrolled in Auto Pay are already receiving an interest rate discount of 0.25 percentage points from their lender. These borrowers do not need to take any further action and will automatically receive an additional interest rate reduction of 0.75 percentage points, the department said.
“This temporary stimulus is designed to help borrowers pay off their balances more quickly, take full advantage of new repayment benefits, stay on track to take advantage of loan repayment opportunities and strengthen the overall health of the federal student loan portfolio,” Assistant Secretary of Education Nicholas Kent said during a call with reporters Thursday.
Kent said the benefit will cost the agency an estimated $6 billion.
Changes are coming
The announcement came ahead of major changes for the federal student loan system Many provisions are also due to come into force on July 1st. They arise from Republicans in Congress’ huge tax and spending cuts bill that President Donald Trump signed last year.
The overhaul includes recent graduate and professional loan limits, a restructured repayment system that gives recent borrowers only two plans to choose from, and the elimination of a key graduate and professional loan program that allowed unlimited borrowing.
Millions of borrowers are now among those who have now died Save on valuable trainingor SAVE, plan will begin receiving notices from their federal loan servicers on July 1 instructing them to enter into a statutory repayment plan within 90 days.
The number of auto-pay registrations has been halved
According to Kent, the federal student loan portfolio is “a staggering $1.7 trillion,” with about 37% of borrowers currently in repayment.
The undersecretary noted that at the end of 2019, nearly 83% of borrowers were enrolled in automatic pay, but that number had fallen to just 40% by the end of 2025.
There were also 9.16 million borrowers in default in April, according to the latest available data from the ministry.
Borrowers have until September 30, 2026 to opt in to automatic payout to be eligible for the two-year benefit.
The benefit is available to borrowers whose federal student loans were taken out after July 1, 2012, the department said.
Kent encouraged borrowers to “take advantage of this opportunity and sign up for automatic direct debit as soon as possible.”
Borrowers can sign up by logging into their loan servicer account and selecting “Autopay” from a navigation bar, he said.
The department clarified that borrowers must maintain automatic payment to continue receiving the reduced interest rate.
