The U.S. Department of Education is temporarily increasing the interest-rate discount it gives federal student-loan borrowers who enroll in automatic payments, raising it from the long-standing 0.25 percentage point to a full 1 percentage point, according to the department's announcement.
The larger discount takes effect July 1, 2026, and is set to expire June 30, 2028. Borrowers who are not already on autopay have until September 30, 2026, to sign up if they want the benefit.
What 'autopay' means
Autopay lets a loan servicer pull each monthly payment directly from a borrower's bank account on the due date. Servicers have for years shaved 0.25 percentage point off the interest rate as an incentive, because automatic payments make missed payments less likely. The new measure adds 0.75 percentage point on top of that existing break, for a combined 1-point reduction. In practice, an undergraduate loan carrying a 6.39% rate would temporarily fall to roughly 5.39%, per CNBC's reporting.
Who qualifies — and who doesn't
The discount applies only to federal Direct Loans originated after July 1, 2012, covering both student and parent borrowers, the department said. That is a meaningful limit: borrowers whose loans predate that cutoff, and those holding older commercially issued FFEL or Perkins loans, are generally not covered. Federal Direct Loans are made and held by the U.S. government; private student loans, issued by banks and other lenders, are entirely separate and unaffected.
Borrowers already enrolled in autopay do not need to do anything — the larger reduction is applied automatically. But only about 40% of borrowers currently use autopay, leaving a large group that would have to actively enroll through their servicer to benefit. The nearly 9 million borrowers in default are excluded until they regain good standing, typically by consolidating or rehabilitating their loans and enrolling in a repayment plan.
The broader backdrop
The discount lands alongside a wider overhaul of federal repayment. Two new plans become available July 1, 2026: the income-based Repayment Assistance Plan (RAP) and a Tiered Standard Plan with fixed terms of 10 to 25 years tied to loan size, the department said. These stem from the repayment changes enacted in the 2025 federal tax-and-spending law.
The department framed the move partly as an effort to improve repayment behavior after the pandemic-era payment pause. The federal student-loan portfolio stands at nearly $1.7 trillion, and delinquencies reached 10.3% in the first quarter of 2026, the highest in six years, CBS News reported.
This article is for information only and is not financial advice. Borrowers should confirm eligibility and enrollment steps with their own loan servicer.
