WASHINGTON, D.C. — The U.S. Department of Education extended enrollment for a temporary 1% interest-rate reduction on eligible federal student loans through Dec. 31, giving borrowers more time to qualify for the discount by enrolling in automatic payments.
Borrowers who enroll in auto pay by the end of 2026, as well as those already participating, can receive the reduced rate through June 30, 2028, provided they remain eligible and continue using automatic payments.
The temporary incentive expands on the 0.25% auto-pay reduction that applied before July 1, 2026. The department said nearly 2 million borrowers have enrolled since the larger reduction was introduced earlier this year.
The policy is designed in part to increase on-time payments as borrowers transition into repayment plans that condition certain benefits on payment history.
“Nearly 2 million borrowers have enrolled in auto pay – helping borrowers reduce long-term interest accrual,” Under Secretary of Education Nicholas Kent said.
The reduction applies to eligible Federal Direct Loans originated after July 1, 2012, including loans held by students and parents.
Borrowers enrolled in the discontinued Saving on a Valuable Education, or SAVE, plan can qualify after moving into another eligible repayment plan and enrolling in auto pay.
Borrowers currently in default are not eligible while their loans remain outside repayment. They must first return eligible loans to good standing, including through consolidation where applicable, and enroll in a repayment plan before using auto pay.
The department is also tying the initiative to its Repayment Assistance Plan, or RAP, which requires on-time payments for some benefits. Borrowers in RAP can receive a payment match intended to prevent interest from accumulating and ensure balances decline each month.
On-time monthly payments also remain relevant for Public Service Loan Forgiveness, which can discharge qualifying federal student debt after 120 eligible payments.
Borrowers who were already enrolled in auto pay when the expanded benefit took effect have had their rates adjusted automatically, according to the department.
Others must enroll through their federal student loan servicer and provide bank account and payment information.
Borrowers applying for income-driven repayment can also authorize the Education Department to obtain federal tax information directly from the Internal Revenue Service, avoiding the need to upload income documentation manually.
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