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Department of Education announces 1 percent interest rate reduction for student loans with auto pay

Federal Newswire · back to the audit
Department of Education announces 1 percent interest rate reduction for student loans with auto pay

By K. K. Maxwell. Jun 18, 2026.

The U.S. Department of Education announced on June 18 that federal student loan borrowers enrolled in auto pay will be eligible for a 1 percent interest rate reduction beginning July 1. Borrowers who enroll in auto pay by September 30, 2026, or who are already enrolled, will benefit from the interest rate reduction through June 30, 2028.

This initiative is part of the Trump Administration's efforts to make higher education more affordable and simplify student loan repayment. Two new repayment plans - the income-driven Repayment Assistance Plan (RAP) and the Tiered Standard repayment plan - will become available on July 1 under the Working Families Tax Cuts Act. Borrowers enrolling in these plans can also sign up for auto pay to streamline their repayment experience.

"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," said Under Secretary of Education Nicholas Kent. "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. We expect this temporary incentive to drive up repayment rates and significantly improve the overall health of the federal student loan portfolio."

Before the COVID-19 pandemic, more than 80 percent of student loan borrowers in active repayment were enrolled in auto pay; currently only about 40 percent are enrolled. Auto pay helps ensure monthly payments are made on time - a requirement for accessing certain benefits such as Public Service Loan Forgiveness (PSLF), which discharges certain loans after 120 payments.

Those already enrolled will automatically receive an additional interest rate reduction totaling one percent on eligible federal direct loans originated after July 1, 2012.