Education Department to Offer Temporary 1-Percentage-Point Autopay Interest Discount for Federal Student Loans

The U.S. Department of Education said Thursday that eligible federal student-loan borrowers who use automatic payments will get a temporary 1 percentage-point interest-rate discount starting July 1, a much larger break than the usual 0.25 percentage-point reduction tied to autopay.

The change, announced in a June 18 press release, applies to borrowers already enrolled in autopay and to those who sign up by Sept. 30, 2026. For borrowers who meet that deadline, the full discount will remain in place through June 30, 2028.

The department said the temporary benefit combines the existing 0.25 percentage-point autopay discount with an added 0.75 percentage points under the new initiative. “Currently, if a borrower enrolls in auto pay, servicers reduce a borrower’s interest rate by 0.25 percent,” the department said.

Eligible loans are Federal Direct Loans originated after July 1, 2012, according to the department. The benefit applies to both student and parent borrowers with qualifying loans. Borrowers who are already enrolled in autopay do not need to do anything; loan servicers will automatically apply the additional 0.75 percentage point, the department said. To keep the discount, borrowers must remain enrolled in autopay.

Borrowers in default are not eligible unless they first bring their loans back into good standing. The department said that means consolidating the loans and entering a repayment plan before enrolling in autopay.

The department is rolling out the change alongside two new repayment options taking effect July 1: the Repayment Assistance Plan, or RAP, and the Tiered Standard plan. Those plans were created under the Working Families Tax Cuts Act, a 2025 law. But the new autopay incentive is not a change to the underlying federal student-loan interest rates set by Congress. It is a temporary administrative discount available only to borrowers who qualify and stay enrolled in autopay.

The move comes as autopay participation has dropped sharply since before the pandemic. The department said more than 80% of student-loan borrowers in active repayment were enrolled in autopay before the pandemic, compared with about 40% today.

That matters because of the scale of the federal student-loan system, even though not all borrowers will qualify for this temporary discount. Federal student lending serves roughly 45 million borrowers and totals about $1.6 trillion in outstanding loans, according to Congressional Research Service and Federal Student Aid summaries.

In the department’s release, Under Secretary of Education Nicholas Kent said the administration was using the temporary incentive to encourage repayment participation as the new plans begin.

“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 to stay on track for key student loan benefits,” Kent said.