WASHINGTON, D.C. — The U.S. Department of Education will temporarily increase interest rate discounts for federal student loan borrowers enrolled in automatic payments beginning July 1, a move aimed at boosting repayment participation as new loan repayment programs take effect.
Under the initiative, borrowers enrolled in auto pay will receive a total 1% interest rate reduction through June 30, 2028. The benefit applies to borrowers already enrolled in automatic payments and those who enroll by Sept. 30, 2026, according to the department.
The incentive comes as the federal government prepares to launch two new repayment options on July 1 under the Working Families Tax Cuts Act: the income-driven Repayment Assistance Plan (RAP) and the Tiered Standard repayment plan.
“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,” Under Secretary of Education Nicholas Kent said.
The department said borrowers currently enrolled in auto pay receive a 0.25% interest rate reduction. Beginning July 1, an additional 0.75% reduction will be applied automatically, bringing the total discount to 1%.
Officials said the initiative is intended to increase on-time repayment and improve the performance of the federal student loan portfolio. Before the COVID-19 pandemic, more than 80% of borrowers in active repayment used auto pay, compared with roughly 40% today.
The enhanced rate reduction applies to Federal Direct Loans originated after July 1, 2012, including loans held by student borrowers and parents. Borrowers currently enrolled in the now-defunct Saving on a Valuable Education (SAVE) plan may also qualify after selecting a new eligible repayment option.
Borrowers in default can access the benefit after bringing their loans back into good standing through consolidation and enrollment in a repayment plan.
The department said auto pay can help borrowers maintain eligibility for benefits tied to on-time payments, including provisions under RAP and the Public Service Loan Forgiveness program, which forgives qualifying federal student loans after 120 eligible payments.
Under RAP, monthly payments are based on income and household size. The Education Department said borrowers who make full, on-time payments under the program will be protected from accumulating unpaid interest and will continue reducing their principal balances.
The new Tiered Standard repayment plan will offer repayment terms of 10, 15, 20, or 25 years depending on total loan balances, providing borrowers with larger debt loads lower monthly payments and longer repayment periods.
Borrowers seeking income-driven repayment plans can authorize the Department of Education to obtain federal tax information directly from the Internal Revenue Service, a process officials said can accelerate application review and reduce paperwork requirements.
Additional information is available through borrowers’ federal loan servicers and at StudentAid.gov.
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