Federal student loan borrowers enrolled in automatic payments will be eligible for a 1% interest rate reduction beginning July 1, the Department of Education said.
Borrowers who are already enrolled in auto pay, or who sign up by Sept. 30, 2026, will receive the temporary rate reduction through June 30, 2028.
Borrowers enrolled in auto pay currently receive a 0.25% interest rate reduction.
The department said the initiative is meant to make repayment easier and encourage more borrowers to make on-time monthly payments. Officials said more than 80% of student loan borrowers in active repayment were enrolled in autopay before the COVID-19 pandemic, compared with about 40% today.
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"No matter your age or college credential, we want to make sure that borrowers can understand their options and choose a repayment option that works best for them. This interest rate reduction will help borrowers as they consider new, affordable repayment plans and work to repay their loans on time," Under Secretary of Education Nicholas Kent said in a statement.
The department said two new repayment plans will also become available July 1: the income-driven Repayment Assistance Plan and the Tiered Standard repayment plan.
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Under RAP, monthly payments will be based on a borrower’s income and number of dependents. The department said the plan is designed to keep payments affordable while ensuring borrowers who make full, on-time monthly payments are protected from runaway interest and continue making progress toward reducing their loan balances.
The Tiered Standard repayment plan will offer fixed repayment terms of 10, 15, 20 or 25 years, depending on a borrower’s total outstanding loan balance. The department said the plan will give borrowers with higher debt lower monthly payments and more time to repay their loans.
