The U.S. Department of Education announced Thursday that federal student loan borrowers who enroll in automatic payments will receive a 1 percentage point reduction on their interest rate for two years, a fourfold increase from the previous discount.
The temporary rate cut will apply from July 1, 2026, through June 30, 2028. Borrowers already signed up for auto pay will receive the lower rate automatically. New enrollees must sign up by Sept. 30 to qualify for the full two-year discount, the department said.
“This temporary incentive is designed to help borrowers pay down their balances more quickly, take full advantage of new repayment benefits, remain on track for loan discharge opportunities and to strengthen the overall health of the federal student loan portfolio,” Undersecretary Nicholas Kent told reporters Thursday.
Kent said auto pay participation fell sharply after the COVID-19 forbearance period. In 2019, roughly 83% of borrowers used automatic payments. By late 2025, that figure had dropped to 40%. The department said the nation’s student debt portfolio grew to $1.7 trillion as millions of borrowers paused or stopped making payments during the multiyear pause.
For an undergraduate borrower with a loan at the current 6.39% interest rate, the 1 percentage point discount would lower the rate to 5.39% for the two-year period, the department said.
The auto pay expansion is part of a broader set of changes taking effect July 1 in the federal student aid system. The department plans to introduce two new repayment plans and implement what it described as controversial new caps on federal graduate student loans.