WASHINGTON — The U.S. Department of Education said this week it will temporarily increase interest-rate reductions for eligible federal student loan borrowers who enroll in automatic payments, a move officials said is intended to encourage repayment and reduce delinquency rates across the federal loan portfolio.
Under the initiative, borrowers who sign up for auto-pay between July 1 and Sept. 30, 2026, will receive a one-percentage-point reduction in their loan interest rate through June 30, 2028, according to the Department of Education. Existing auto-pay participants will also receive the enhanced benefit automatically.
The department announced the change on Thursday, replacing the longstanding 0.25 percentage-point discount traditionally offered to borrowers using automatic debit payments. Officials said the temporary increase applies to eligible federal Direct Loans originated after July 1, 2012. Borrowers in default generally must return their loans to good standing before qualifying, according to department guidance.
In a briefing with reporters, Undersecretary Nicholas Kent said participation in auto-pay programs had fallen sharply since the COVID-era payment pause. “This temporary incentive is designed to help borrowers pay down their balances more quickly,” Kent said, adding that it would also help borrowers remain eligible for repayment benefits and loan discharge opportunities.
The announcement comes as federal student loan repayment policies undergo broader changes. The Education Department has been implementing reforms authorized under recently enacted legislation, including new repayment options scheduled to take effect beginning July 1. Department fact sheets describe the changes as part of a broader effort to simplify repayment and improve the performance of the federal student lending system.
Education officials said auto-pay enrollment rates have declined significantly from pre-pandemic levels. According to the department, roughly four in 10 borrowers currently use automatic payments, compared with more than eight in 10 before the pandemic-related repayment suspension. Officials said increasing participation could help reduce missed payments and defaults.
The federal student loan portfolio totals about $1.7 trillion, according to Education Department figures cited by multiple news organizations. Officials have also reported that millions of borrowers are either delinquent or in default on their loans.
As of Friday, the department said eligible borrowers already enrolled in auto-pay do not need to take additional action to receive the enhanced discount. The temporary interest-rate reduction is scheduled to begin July 1 and remain in effect through June 30, 2028.
