Significant Interest Rate Reduction for Student Loan Borrowers Using Auto Pay
Starting July 1, student loan borrowers who opt for automatic payments will experience a larger interest rate discount, according to the U.S. Department of Education. This move aims to incentivize more borrowers to use auto pay, especially after a significant drop in participation.
The auto pay discount, which has traditionally been a modest 0.25 percentage points, will temporarily increase to a full percentage point. This adjustment comes after a long pause in payments during the COVID-19 pandemic led to a surge in the national student debt, now totaling $1.7 trillion. Borrowers who had previously not made payments for years are encouraged to return to auto pay with this new incentive.
Announced by the Department of Education, this enhanced discount will be effective for two years, from July 1, 2026, through June 30, 2028. For example, an undergraduate borrower with a current loan interest rate of 6.39% will see a reduction to 5.39% when signed up for auto pay during this period.
Borrowers who are already using auto pay will automatically benefit from this rate cut without any additional action required. Undersecretary Nicholas Kent highlighted that auto pay enrollment had dropped from 83% in 2019 to just 40% by the end of 2025. “This temporary incentive is designed to help borrowers pay down their balances more quickly,” Kent stated, emphasizing the initiative’s role in maintaining the health of the federal student loan portfolio and helping borrowers stay on track for loan discharge opportunities.
Borrowers have until September 30 to enroll in auto pay to qualify for the two-year discount. This initiative is part of broader changes in the federal student aid system starting on July 1, which includes the introduction of new repayment plans and caps on graduate student loans. These changes are detailed further here.
For more information and updates on student loan management, visit the U.S. Department of Education’s official announcement here.
