Student-loan borrowers have until Sept. 30 to enroll in autopay and receive a temporary 1-percentage-point reduction in their federal student-loan interest rate.
The benefit is available through June 30, 2028, for eligible borrowers who enroll by the deadline or were already enrolled in autopay. The Education Department announced the temporary reduction in June as part of broader changes to federal student-loan repayment.
How The 1% Rate Reduction Works
Borrowers who enroll in autopay normally receive a 0.25-percentage-point reduction in their interest rate. Under the temporary benefit, the department is adding another 0.75 percentage points, bringing the total reduction to 1 percentage point.
Autopay allows loan servicers to automatically deduct monthly payments from a borrower’s bank account. Borrowers who were already enrolled in autopay do not need to take additional action because their servicer will automatically apply the additional 0.75-percentage-point reduction.
The benefit applies to eligible Federal Direct Loans originated after July 1, 2012. Borrowers in default must first return their loans to good standing before they can receive the benefit. Borrowers must also remain enrolled in autopay to continue receiving the reduction.
Repayment Changes Add Pressure
The temporary incentive comes as borrowers adjust to a broader federal student-loan overhaul that took effect July 1. The changes introduced the Repayment Assistance Plan, or RAP, and the Tiered Standard Repayment Plan while phasing out the Biden-era Saving on a Valuable Education, or SAVE, plan for millions of borrowers.
The broader repayment overhaul has also raised questions about the accuracy of federal student-loan records. In August, the Education Department corrected a court filing after initially reporting that four borrowers in an ongoing lawsuit had most recently reported $0 in income. The department said technical problems with its National Student Loan Data System database had removed some older borrower income information.
Under RAP, monthly payments are based on a borrower’s income and number of dependents. The plan also provides protections against unpaid interest growing a borrower’s balance when full, on-time payments are made. The Tiered Standard plan offers fixed repayment terms of 10, 15, 20 or 25 years based on the borrower’s outstanding balance.
Borrowers who fail to make full, on-time RAP payments can lose certain RAP benefits, including interest-related protections. Late payments generally do not count as qualifying payments toward the Public Service Loan Forgiveness program.
Lawmakers Push for Lower Rates
Rep. Anna Paulina Luna (R-Fla.) , posted on X on Tuesday that Congress should cap federal student-loan interest rates at 2%. “Student loans were supposed to be a pathway to the American Dream, but instead they’ve become a lifetime subscription to interest payments. Congress should CAP federal student loan interest rates at 2%. Americans should be able to pay back what they borrowed without paying for it twice,” Luna said.
The Education Department has said the temporary autopay incentive is intended to encourage borrowers to make payments on time and improve the overall health of the federal student-loan portfolio.
In a June 18 statement announcing the interest-rate reduction, Under Secretary of Education Nicholas Kent said the department expects the incentive to “drive up repayment rates and significantly improve the overall health of the federal student loan portfolio.”
The temporary interest-rate reduction will remain available through June 30, 2028, but eligible borrowers who want to receive it must enroll in autopay by Sept. 30.
Disclaimer: This content was produced with the help of AI tools and was reviewed and published by Benzinga editors.
Photo courtesy: Shutterstock
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